Government Pension Offset for Social Security

willen gpo 1969 by Mr ATMThere’s a somewhat confusing situation that occurs when a spouse who is receiving either a Spousal benefit or a Survivor’s benefit from Social Security while at the same time is receiving a pension from a federal, state, or local government.  This is specifically so if the pension being received is from a job where Social Security taxes (OASDI) were not withheld.

What happens is that the Social Security Administration will reduce the Spousal or Survivor’s benefit by a factor equal to two-thirds of the government pension that he or she is receiving.  This is called the Government Pension Offset, or GPO (yay, another acronym from the Social Security Administration SSA!)  The GPO is related to the Windfall Elimination Provision (WEP).  That’s the facts of the situation… let’s look at Why?

Why?

Eligibility for Spousal or Survivor’s benefits are based upon your own record with the Social Security administration.  If your own benefit is greater than the Survivor’s or Spousal benefit, of course you would not be receiving the Survivor’s or Spousal benefit – you can only receive either your own benefit or the Survivor’s or Spousal benefit, whichever is greater.

Since you are receiving a pension from a government job that did not require you to have Social Security tax withheld, your own Social Security record doesn’t reflect the income earned from that job.  The pension is designed to take the place of Social Security benefits – at least to some degree.  This particular quandary was first addressed in 1977 with the amendments in that year – but it really went too far at that stage.

1977 Amendment

Government pensions from jobs not subject to Social Security tax withholding are designed to be equal to partially pension, and partially compensation intended to replace Social Security benefits for the retiree.  In 1977 an amendment was made to the Act to address the fact that, otherwise, a Spousal benefit or Survivor’s benefit would be compensating the Spouse more than the system originally intended.  The 1977 Amendment offset the Social Security Spousal or Survivor’s benefit dollar-for-dollar for each dollar of pension received from government work that was not subject to Social Security tax (from a job that the Spouse or Survivor worked).

1983 Amendment

In the 1983 Amendment, the Government Pension Offset (or GPO) was improved for Spousal and Survivor’s benefits. Instead of the original dollar-for-dollar offset, now the Social Security Spousal or Survivor’s benefit is only reduced by two-thirds of the government pension.  This more accurately reflects the fact that the government pension is part pension and part compensation to replace the Social Security benefit.

When Does the GPO NOT Apply?

It’s possible that your particular situation may provide for your Spousal or Survivor’s benefit to not be impacted by the Government Pension Offset.  Listed below are several situations that will permit the GPO to not apply:

  • If you are receiving a government pension that is not based on earnings;
  • If you are a state of local employee whose government pension is based on a job where you were paying Social Security taxes
    • on the last day of your employment and your last day was prior to July 1, 2004; or
    • during the last five years of employment and your last day of employment was July 1, 2004 or later.  Depending upon the circumstances, fewer than five years could be required for folks whose last day of employment falls between July 1, 2004 and March 1 2009 inclusive.
  • If you are a federal employee, including Civil Service Offset employee, who pays Social Security taxes on your earnings.  (A Civil Service Offset employee is a federal employee who was rehired after December 31, 1983, following a break in service of more than 365 days and had five years of prior civil service retirement system coverage);
  • If you are a federal employee who elected to switch from the Civil Service Retirement System to the Federal Employees’ Retirement System (FERS) on or before June 30, 1988.  If you switched after that date, including during the open season from July 1, 1998 through December 31, 1998, you need five years under FERS to be exempt from the GPO;
  • If you received or were eligible to receive a government pension before December 1982 and meet all the requirements for Social Security Spousal benefits or Survivor’s benefits in effect in January 1977; or
  • If you received or were eligible to receive a federal, state or local government pension before July 1, 1983, and were receiving one-half support from your spouse.
Photo by Mr ATM

Post from: Getting Your Financial Ducks In A Row

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).



Government Pension Offset for Social Security

Share and Enjoy: Digg del.icio.us Facebook Google Bookmarks email LinkedIn MySpace StumbleUpon TwitThis Live Technorati Tipd Yahoo! Buzz

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

An IRA Owner's Manual
A Social Security Owner's Manual

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Copyright 2014 FiGuide.com   About Us   Contact Us   Our Advisors       Login