In covered employment, earnings are subject to the Social Security payroll tax; Social Security benefits are based on covered earnings.

Disabled workers are generally required to have worked fewer years. For more information, see Social Security Administration (SSA), How You Earn Credits, Publication No. 05-10072, January 2016, https://www.ssa.gov/pubs/EN-05-10072.pdf.

Both the annual earnings amounts over the worker's lifetime and the bracket amounts are indexed to national wage growth so that the Social Security benefit replaces approximately the same proportion of wages for each generation.

The replacement rate is the ratio of a Social Security benefit to a worker's pre-retirement income.

The WEP is sometimes confused with the Government Pension Offset (GPO), which reduces Social Security benefits paid to spouses and widow(er)s of insured workers if the spouse or widow(er) also receives a pension based on government employment not covered by Social Security. For more information on the GPO, please refer to CRS Report RL32453, Social Security: The Government Pension Offset (GPO).

Section 215(a)(7) and (d)(3) of the Social Security Act; 42 U.S.C. §415(a)(7) and (d)(3). See also 20 C.F.R. §§404.213 and 404.243 as well as SSA, Program Operations Manual System, "RS 00605.360 WEP Applicability," June 24, 2013, http://policy.ssa.gov/poms.nsf/lnx/0300605360. Federal service where Social Security taxes are withheld (i.e., Federal Employees' Retirement System or CSRS Offset) is not affected by the WEP.

For the worker shown in Table 2, with an AIME of $1,500 and a monthly benefit of $976.48 under the regular benefit formula in 2016, the WEP reduction of $428.00 represents a cut of approximately 44% to the regular formula monthly benefit amount. By comparison, a worker with an AIME of $4,000 would be entitled to a PIA of $1,776.48 under the 2016 regular benefit formula, and the same WEP reduction of $428 per month would represent a 24% reduction in this worker's monthly benefit amount.

For determining years of coverage after 1978 for individuals with pensions from non-covered employment, "substantial coverage" is defined as 25% of the "old law" (i.e., if the 1977 Social Security Amendments had not been enacted) Social Security maximum taxable wage base for each year in question. In 2016, the "old-law" taxable wage base is equal to $88,200; therefore, to earn credit for one year of substantial employment under the WEP, a worker would have to earn at least $22,050CRS.

Notes: The WEP reduction may be lower than the amount shown because the reduction is limited to one-half of the worker's pension from noncovered employment. In addition, because the WEP reduces the initial benefit amount before it is reduced or increased due to early retirement, delayed retirement credits (DRCs), cost-of-living adjustments (COLAs), or other factors, the difference between the final benefit with the WEP and the final benefit without the WEP may be less than or greater than the amounts shown.

The WEP applies to benefits payable to retired or disabled workers who meet the criteria above and to their eligible dependents; however, it does not apply to benefits payable to survivors of deceased insured workers. Groups of workers likely to be affected by the WEP include certain state and local government employees who are covered by alternative pension plans through their employers¹³ and most permanent civilian federal employees hired before January 1, 1984, who are covered by the Civil Service Retirement System (CSRS).¹⁴ The WEP does not apply to

• federal employees performing service on January 1, 1984, to which coverage was extended on that date by reason of the Social Security Amendments of 1983 (P.L. 98-21);
• employees of a nonprofit organization who were exempt from Social Security coverage on December 31, 1983, and who became covered for the first time on January 1, 1984, under P.L. 98-21;
• workers who attained age 62, became disabled, or were first eligible for a pension from noncovered employment before 1986;
• workers who receive foreign pension payments after 1994 that are based on a totalization agreement with the United States;¹⁵
• workers whose only noncovered pension is based on earnings from noncovered domestic or foreign employment before 1957;¹⁶ and
• railroad workers whose only noncovered pension is based on earnings from employment covered by the Railroad Retirement Act.¹⁷

The WEP was enacted in 1983 as part of major amendments (P.L. 98-21) designed to shore up the financing of the Social Security program. The 40% WEP formula factor was the result of a compromise between a House bill that would have substituted a 61% factor for the regular 90% factor and a Senate proposal that would have substituted a 32% factor.¹⁹

The purpose of the 1983 provision was to remove an unintended advantage that the regular Social Security benefit formula provided to certain retired or disabled worker-beneficiaries who were also entitled to pension benefits based on earnings from jobs not subject to the Social Security payroll tax. The regular formula was intended to help workers who spent their lifetimes in low-paying jobs, by providing them with a benefit that replaces a higher proportion of their career-average earnings than the benefit provided to workers with high career-average earnings. However, the formula does not differentiate between those who worked in low-paid jobs throughout their careers and other workers who appear to have been low paid because they worked many years in jobs not covered by Social Security. Under the old law, workers who were employed for only a portion of their careers in jobs covered by Social Security—even highly paid ones—also received the advantage of the weighted formula, because their few years of covered earnings were averaged over their entire working career to determine the average covered earnings on which their Social Security benefits were based. The WEP is intended to place affected workers in approximately the same position they would have been in had all their earnings been covered by Social Security.

Proponents of the measure say that it is a reasonable means to prevent payment of overgenerous and unintended benefits to certain workers who otherwise would profit from happenstance (i.e., the mechanics of the Social Security benefit formula). Furthermore, they maintain that the provision rarely causes hardship because by and large the people affected are reasonably well off because by definition they also receive pensions from noncovered work. The guarantee provision ensures that the reduction in Social Security benefits cannot exceed half of the pension from noncovered work, which protects people with small pensions from noncovered work. In addition, the impact of the WEP is reduced for workers who spend 21 to 29 years in Social Security-covered work and is eliminated for people who spend 30 years or more in Social Security-covered work.

Some opponents believe the provision is unfair because it substantially reduces a benefit that workers may have included in their retirement plans. Others criticize how the provision works. They say the arbitrary 40% factor in the windfall elimination formula is an imprecise way to determine the actual windfall when applied to individual cases.²⁰

The impact of the WEP on low-income workers has been the subject of debate. Jeffrey Brown and Scott Weisbenner (hereinafter "Brown and Weisbenner") point out two reasons why the WEP can be regressive.²¹ First, because the WEP adjustment is confined to the first bracket of the benefit formula ($895 in 2018), it causes a proportionally larger reduction in benefits for workers with lower AIMEs and benefit amounts. Second, a high earner is more likely than a low earner to cross the "substantial work" threshold for accumulating years of covered earnings (in 2018 this threshold is $23,850 in Social Security-covered earnings); therefore, high earners are more likely to benefit from the provision that phases out the WEP for people with between 21 and 30 years of covered employment.

SSA estimated that in 2000, 3.5% of beneficiaries affected by the WEP had incomes below the poverty line. For comparison purposes, at that time 8.5% of Social Security beneficiaries aged 65 and older had incomes below the poverty line and 11.3% of the general population had incomes below the poverty line.²² This comparison implies that people who are subject to the WEP, who by definition also have pensions from noncovered employment, face a somewhat reduced risk of poverty compared with other Social Security beneficiaries.

H.R. 1205 and S. 915, identical bills both titled the Social Security Fairness Act of 2017, were introduced by Representative Rodney Davis on February 21, 2017, and Senator Sherrod Brown on April 24, 2017, respectively. The legislation would repeal the WEP as well as the government pension offset (GPO), which reduces the Social Security benefits paid to spouses and widow(er)s of insured workers if the spouse or widow(er) also receives a pension based on government employment not covered by Social Security.²³ The elimination of the WEP and GPO would apply to benefits payable for months after December 2017.

In 2016, SSA's Office of the Chief Actuary (OCACT) projected that repealing both the WEP and the GPO would reduce the long-range actuarial balance (i.e., increase the net long-term cost) of the combined Social Security trust funds by 0.13% of taxable payroll.²⁴ OCACT estimated that repealing only the WEP would reduce the long-range actuarial balance of the combined trust funds by 0.08% of taxable payroll.²⁵

State

Total

Type of Beneficiary

Disabled Workers

Spouses and Children

Total

1,804,095

1,687,542

13,981

102,572

Alabama

18,771

17,463

224

1,084

Alaska

10,862

10,334

74

454

Arizona

34,000

31,945

240

1,815

Arkansas

10,570

10,012

136

422

California

249,198

234,081

1,784

13,333

Colorado

59,621

56,533

734

2,354

Connecticut

18,875

18,089

123

663

Delaware

4,152

3,962

31

159

District of Columbia

7,711

7,435

71

205

Florida

99,892

93,602

659

5,631

Georgia

52,543

50,108

440

1,995

Hawaii

10,812

10,042

41

729

Idaho

7,852

7,344

72

436

Illinois

93,718

89,644

451

3,623

Indiana

16,785

15,849

156

780

Iowa

8,300

7,894

52

354

Kansas

9,340

8,840

86

414

Kentucky

23,693

22,523

216

954

Louisiana

42,328

39,500

636

2,192

Maine

17,642

16,880

96

666

Maryland

47,577

45,152

321

2,104

Massachusetts

72,856

69,776

597

2,483

Michigan

21,539

20,127

208

1,204

Minnesota

16,874

16,060

104

710

Mississippi

9,761

9,150

120

491

Missouri

38,192

36,731

271

1,190

Montana

6,249

5,891

29

329

Nebraska

5,471

5,207

42

222

Nevada

30,918

29,640

222

1,056

New Hampshire

8,043

7,626

84

333

New Jersey

22,916

21,347

236

1,333

New Mexico

13,462

12,463

142

857

New York

32,532

30,162

296

2,074

North Carolina

30,227

28,731

198

1,298

North Dakota

2,342

2,223

13

106

Ohio

138,005

131,219

1,333

5,453

Oklahoma

17,503

16,414

176

913

Oregon

17,424

16,371

102

951

Pennsylvania

36,607

34,298

359

1,950

Rhode Island

5,618

5,376

49

193

South Carolina

18,711

17,700

142

869

South Dakota

3,977

3,807

23

147

Tennessee

20,787

19,592

162

1,033

Texas

172,981

163,210

1,215

8,556

Utah

13,818

12,756

101

961

Vermont

2,653

2,491

12

150

Virginia

49,212

46,137

238

2,837

Washington

32,811

30,409

220

2,182

West Virginia

6,306

5,820

80

406

Wisconsin

12,421

11,771

68

582

Wyoming

2,482

2,354

13

115

Outlying Areas and Foreign Countries

97,155

75,451

483

21,221

State

All Beneficiaries

Type of Beneficiary

Disabled Workers

Spouses and Children

Total

2.9%

4.0%

0.2%

2.2%

Alabama

1.7%

2.5%

0.1%

1.2%

Alaska

11.0%

15.1%

0.6%

6.0%

Arizona

2.6%

3.4%

0.2%

2.0%

Arkansas

1.5%

2.3%

0.1%

0.8%

California

4.3%

5.6%

0.3%

2.7%

Colorado

7.0%

9.2%

0.7%

3.8%

Connecticut

2.8%

3.7%

0.2%

1.5%

Delaware

2.0%

2.6%

0.1%

1.3%

District of Columbia

9.4%

13.3%

0.5%

4.5%

Florida

2.2%

2.8%

0.1%

1.8%

Georgia

2.9%

4.2%

0.2%

1.6%

Hawaii

4.1%

4.9%

0.2%

4.2%

Idaho

2.3%

3.1%

0.2%

1.7%

Illinois

4.2%

5.8%

0.2%

2.2%

Indiana

1.3%

1.8%

0.1%

0.8%

Iowa

1.3%

1.7%

0.1%

0.9%

Kansas

1.7%

2.3%

0.1%

1.1%

Kentucky

2.4%

3.9%

0.1%

1.1%

Louisiana

4.7%

7.5%

0.4%

2.5%

Maine

5.2%

7.4%

0.2%

2.6%

Maryland

4.8%

6.4%

0.2%

3.3%

Massachusetts

5.8%

8.1%

0.3%

2.5%

Michigan

1.0%

1.4%

0.1%

0.7%

Minnesota

1.7%

2.2%

0.1%

1.0%

Mississippi

1.5%

2.3%

0.1%

0.9%

Missouri

3.0%

4.3%

0.1%

1.4%

Montana

2.7%

3.6%

0.1%

2.2%

Nebraska

1.6%

2.1%

0.1%

1.0%

Nevada

5.9%

7.8%

0.3%

3.3%

New Hampshire

2.7%

3.7%

0.2%

1.4%

New Jersey

1.4%

1.8%

0.1%

1.1%

New Mexico

3.1%

4.3%

0.2%

2.5%

New York

0.9%

1.2%

0.1%

0.7%

North Carolina

1.5%

2.0%

0.1%

1.0%

North Dakota

1.8%

2.4%

0.1%

1.2%

Ohio

5.9%

8.5%

0.4%

3.1%

Oklahoma

2.2%

3.2%

0.1%

1.6%

Oregon

2.0%

2.6%

0.1%

1.7%

Pennsylvania

1.3%

1.8%

0.1%

1.0%

Rhode Island

2.5%

3.5%

0.1%

1.3%

South Carolina

1.7%

2.3%

0.1%

1.2%

South Dakota

2.3%

3.0%

0.1%

1.4%

Tennessee

1.5%

2.1%

0.1%

1.0%

Texas

4.2%

6.0%

0.2%

2.3%

Utah

3.5%

4.7%

0.2%

2.7%

Vermont

1.8%

2.4%

0.1%

1.4%

Virginia

3.3%

4.4%

0.1%

2.6%

Washington

2.5%

3.2%

0.1%

2.2%

West Virginia

1.3%

2.1%

0.1%

0.9%

Wisconsin

1.0%

1.4%

0.0%

0.7%

Wyoming

2.3%

3.0%

0.1%

1.7%

Outlying Areas and Foreign Countries

6.4%

8.4%

0.3%

8.9%

For the purposes of this report, the term payroll tax includes the Social Security self-employment tax.

Unless otherwise noted, the term covered employment includes self-employment covered by Social Security.

See Social Security Administration (SSA), How You Earn Credits, Publication No. 05-10072, January 2018, https://www.ssa.gov/pubs/EN-05-10072.pdf.

Years of earnings are indexed up to the second calendar year before the year of earliest eligibility (i.e., the year in which the worker first attains aged 62, becomes disabled, or dies). Years of earnings after the last indexing year are counted in nominal (i.e., unadjusted) dollars.

The number of benefit computation years for disabled or deceased workers may be fewer than 35 years.

The worker's primary insurance amount (PIA) is subsequently adjusted to account for inflation through cost-of-living adjustments (COLAs). Additional adjustments may be made to the PIA to account for early retirement, delayed retirement, or certain other factors.

Although the factors in the formula are fixed in law, the dollar amounts defining the brackets, also known as bend points, are adjusted annually for average earnings growth in the national economy. Because the bend points change each year, the benefit formula for a worker with an earliest eligibility year (ELY) in 2018 is different from the benefit formula for a worker with an ELY in any other year. For bend point amount for years prior to 2018, see SSA, Office of the Chief Actuary (OCACT), "Benefit Formula Bend Points," https://www.ssa.gov/oact/cola/bendpoints.html.

The replacement rate is the ratio of the program benefit to a worker's prior earnings.

The windfall elimination provision (WEP) is sometimes confused with the government pension offset (GPO), which reduces Social Security benefits paid to spouses and widow(er)s of insured workers if the spouse or widow(er) also receives a pension based on government employment not covered by Social Security. See CRS Report RL32453, Social Security: The Government Pension Offset (GPO).

Section 215(a)(7) and (d)(3) of the Social Security Act; 42 U.S.C. §415(a)(7) and (d)(3). See also 20 C.F.R. §§404.213 and 404.243. Moreover, see SSA, Program Operations Manual System, "RS 00605.360 WEP Applicability," June 24, 2013, http://policy.ssa.gov/poms.nsf/lnx/0300605360. The term "windfall elimination provision" is not specified in statute or in SSA's regulations.

For determining years of coverage after 1978 for individuals with pensions from noncovered employment, "substantial coverage" is defined as 25% of the "old law" Social Security maximum taxable earnings base for each year in question. The old law maximum taxable earnings base refers to the earnings base that would have been in effect had the Social Security Amendments of 1977 (P.L. 95-216) not been enacted. In 2018, the old-law taxable earnings base is equal to $95,400; therefore, to earn credit for one year of substantial employment under the WEP, a worker would have to earn at least $23,850 in Social Security-covered employment. For the thresholds for previous years, see SSA, OCACT, "Old-Law Base and Year of Coverage," https://www.ssa.gov/oact/cola/yoc.html.

See Department of the Treasury, Internal Revenue Service (IRS), Federal-State Reference Guide, IRS Publication 963 (Rev. 11-2014), https://www.irs.gov/pub/irs-pdf/p963.pdf.

See CRS Report 98-810, Federal Employees' Retirement System: Benefits and Financing.

Totalization agreements are bilateral agreements that provide limited coordination of the U.S. Social Security program with comparable social insurance programs of other countries. The agreements are intended primarily to eliminate dual Social Security taxation based on the same work and provide benefit protection for workers who divide their careers between the U.S.United States and a foreign country. and a foreign country. See SSA, "U.S. International Social Security Agreements," https://www.ssa.gov/international/agreements_overview.html.

Data on the total Social Security beneficiary and retired-worker populations used in calculations are available from the "Social Security Beneficiary Data" page on SSA's website at https://www.ssa.gov/oact/ProgData/beniesQuery.htmlThe WEP does not apply in cases where the pension is based, in part, on noncovered military reserve duty before 1988 but after 1956.

SSA, Office of Research, Evaluation and Statistics, February 2016, unpublished table W01POMS, "RS 00605.362 Windfall Elimination Provision (WEP) Exceptions," November 9, 2017, https://secure.ssa.gov/poms.nsf/lnx/0300605362.

Data on the total Social Security beneficiary and retired-worker populations used in these calculations are from SSA, OCACT, "Benefits Paid By Type Of Beneficiary," https://www.ssa.gov/oact/ProgData/icp.html.

Social Security Amendments of 1983 (P.L. 98-21). For more information on the 1983 amendments, see John A. Svahn and Mary Ross, "Social Security Amendments of 1983: Legislative History and Summary of Provisions," Social Security Bulletin, vol. 46, no. 7 (July 1983), https://www.ssa.gov/policy/docs/ssb/v46n7/v46n7p3.pdf.

U.S. Congress, Committee of Conference, Social Security Amendments of 1983, conference report to accompany H.R. 1900, 98^th Cong., 1^st sess., March 24, 1983, H.Rept. 98-47 (Washington: GPO, 1983), pp. 120-121, http://www.finance.senate.gov/imo/media/doc/Conf-98-47.pdf.

See, for example, the Social Security Advisory Board, The Windfall Elimination Provision: It's Time to Correct the Math, October 1, 2015, http://www.ssab.gov/Portals/0/OUR_WORK/REPORTS/WEP_Position_Paper_2015.pdf.

Jeffrey R. Brown and Scott Weisbenner, "The Distributional Effects of the Social Security Windfall Elimination Provision," Journal of Pension Economics and Finance, vol. 12, iss. 04 (October 2013), pp. 415-434, at http://business.illinois.edu/weisbenn/RESEARCH/PAPERS/JPEF_Brown_Weisbenner.pdf.

These are the most recent estimates available. Poverty rates were calculated by David Weaver of the Social Security Administration, formerly of SSA's Office of Retirement Policy, using the March 2001 Current Population Survey (CPS). Poverty status is taken directly from the CPS and is thus subject to errors in the reporting of income. The sample size for the WEP poverty rate is relatively small (230 cases) and only includes people for whom SSA administrative records could be matched.

See CRS Report RL32453, Social Security: The Government Pension Offset (GPO). See also SSA, Government Pension Offset, July 2015, https://www.ssa.gov/pubs/EN-05-10007.pdfCRS In Focus IF10203, Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

Letter from Stephen C. Goss, Chief Actuary, SSA, to the Honorable Sherrod Brown, U.S. Senate, February 24, 2016, https://www.ssa.gov/oact/solvency/SBrown_20160224.pdf. The projection iswas based on the intermediate assumptions of the 2015 Social Security trustees report. Taxable payroll is the total amount of earnings in the economy that is subject to Social Security payroll and self-employment taxes (with some adjustments).

When a trust fund is depleted, it no longer has any asset reserves (i.e., U.S. Treasury securities); however, it continues to receive income from payroll taxes and the taxation of benefits. See CRS Report RL33028, Social Security: The Trust Funds; and CRS Report RL33514, Social Security: What Would Happen If the Trust Funds Ran Out?. See also CRS Report RL33028, Social Security: The Trust Funds.

Testimony of David A. Rust, acting deputy commissioner for disability and income security programs, SSA, in U.S. Congress, House Committee on Ways and Means, Subcommittee on Social Security, Social Security Benefits for Economically Vulnerable Beneficiaries, 110^th Cong., 2^nd sess., January 16, 2008, http://www.socialsecurity.gov/legislation/testimony_011608.html. SSA's 2007 estimate of the effects of repealing the WEP was based on H.R. 82, the Social Security Fairness Act of 2007, which was introduced in the 110^th Congress by Representative Howard L. Berman. The WEP provisions in H.R. 82 are identical to the WEP provisions in H.R. 973 and S. 1651. See also U.S. Congress, Senate Committee on Finance, Subcommittee on Social Security, Pensions, and Family Policy, Government Pension Offset (GPO) and Windfall Elimination Provision (WEP): Policies Affecting Pensions from Work Not Covered by Social Security, 110^th Cong., 1^st sess., November 6, 2007, 110-903 (Washington: GPO, 2007), p. 38, http://www.finance.senate.gov/imo/media/doc/51475.pdf.

Letter from Stephen C. Goss, Chief Actuary, SSA, to the Honorable Kevin Brady, U.S. House of Representatives, March 17, 2016, p. 2, https://www.ssa.gov/oact/solvency/KBrady_20160317.pdf (hereinafter "OACT Cost Estimate for H.R. 711").

Testimony of Stephen C. Goss, Chief Actuary, SSA, in U.S. Congress, House Committee on Ways and Means, Subcommittee on Social Security, Social Security and Public Servants: Ensuring Equal Treatment, hearing on H.R. 711, the Equal Treatment of Public Servants Act of 2015, 114^th Cong., 2^nd sess., March 22, 2016, p. 3, https://www.ssa.gov/OACT/testimony/HouseWM_20160322.pdf (hereinafter "Testimony of Stephen C. Goss"). The chief actuary's submitted testimony stated that there are roughly 1.5 million retired or disabled-worker beneficiaries in 2016 whose benefits are reduced by the WEP. This figure differs from the 1.6 million retired or disabled-worker beneficiaries shown in Table 4 who were affected by the WEP in December 2015.

Ibid.

"Years of coverage" refers to the number of years of substantial earnings in covered employment. See footnote 8.

OACT Cost Estimate for H.R. 711, pp. 1-2.

For more information on SSA's administrative budget, see CRS Report R41716, The Social Security Administration (SSA): Budget Request and Appropriations.

Testimony of Stephen C. Goss, pp. 4-5.

Ibid., p. 4.

Ibid., p.5.

OACT Cost Estimate for H.R. 711, p. 3.

U.S. Office of Management and Budget, Appendix, Budget of the U.S. Government, Fiscal Year 2017, February 2016, p. 1231, https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/ssa.pdf.

For more information on the GPO proposal, see testimony of Samara Richardson, Acting Associate Commissioner, Office of Income Security Programs, SSA, in U.S. Congress, House Committee on Ways and Means, Subcommittee on Social Security, Social Security and Public Servants: Ensuring Equal Treatment, hearing on H.R. 711, the Equal Treatment of Public Servants Act of 2015, 114^th Cong., 2^nd sess., March 22, 2016, https://www.ssa.gov/legislation/testimony_032216.html.

Letter from Stephen C. Goss, Chief Actuary, SSA, to the Honorable Shaun Donovan, OMB Director, February 10, 2016, p. 1, https://www.ssa.gov/oact/solvency/FY2017Budget_20160210.pdf.

Testimony of Stephen C. Goss, p. 6.