Social Security Tax & Pensions

There are two aspects of retirement: preparing for it – by working and earning Social Security benefits and/or a pension and investing for your retirement – and living it. Neither are particularly easy.

In regards to your Social Security benefits, its primary determinants are the length of time you spend in the workforce, the amount you earn during that time, the point in your lifetime at which you retire and whether you've also earned a pension.

Many employees pay Social Security tax, which is withheld from paychecks by employers and forwarded to the Social Security Administration. In contrast, a pension plan is maintained by your employer, whether it operates in the public or private sector.

You may receive both a pension and Social Security benefits, in which case your pension might reduce your Social Security benefits. Whether it does so is determined by a number of factors, such as if the pension is the result of your work with a government or another employer that deducts Social Security taxes from your paycheck.

Private Pension Impact

If your work is limited to jobs for which Social Security taxes were deducted from your pay, your Social Security benefits are unaffected by your pension payments. You will receive both your Social Security and pension benefits in full.

Government Pension Impact

If, however, you receive a government pension, the Windfall Elimination Provision or the Government Pension Offset may affect your Social Security benefits:

Windfall Elimination Provision

The Windfall Elimination Provision, or WEP, is one determinant of how your retirement and disability benefits are calculated. For instance, if the source of your pension is a job for which no Social Security taxes were withheld from your paychecks, that pension can reduce any Social Security retirement or disability benefit that you receive from a job for which Social Security taxes were withheld.

According to the Social Security Administration, the WPE goes into effect if your situation meets certain criteria:

  • You reached ​62 years​ of age after 1962.
  • You became disabled after 1985.
  • Your eligibility for a pension is due to work that occurred after 1985 and for which you did not or do not pay Social Security taxes.
  • You performed federal service under the Civil Service Retirement System (CSRS) after 1956.

WEP does not go into effect if your situation meets particular criteria:

  • Your pension relates to federal work that was governed by the Federal Employees’ Retirement System (FERS.)
  • As a federal worker, you were hired after Dec. 31, 1983.
  • You were hired by a non-profit organization after Dec. 31, 1983.
  • Your only pension is for railroad employment.
  • The work you performed for which you didn’t pay Social Security taxes was before 1957.
  • You have ​30 or more years​ of substantial earnings under Social Security.

To determine the exact effect of the WEP on the Social Security benefit that you'll receive, visit the Social Security Administration office near you or phone ​1-800-772-1213​.

Government Pension Offset

In most circumstances, the Social Security benefits a spouse or survivor receives – benefits based on a partner's work history – is equal to the partner's full benefit, assuming the partner applied for benefits at the full retirement age, which varies according to the retiree's birth year. That benefit is less, however, if the partner claimed the benefit sometime between age 62 and the full retirement age.

If you are a spouse, widow or widower who receives both a spouse's or survivor's Social Security benefit and your own federal, state or local government job pension, the Social Security payment you receive may be reduced by the Government Pension Offset, or GPO.

Government Pension Offset Exemptions:

If you held a job at some point in your career for which Social Security taxes were withheld from your paychecks, your spousal or survivor Social Security benefit will not be reduced due to the GPO.

Likewise, if your government pension is not based on your earnings, your spousal or survivor benefit won't be reduced.

Also, the SSA says if your federal, civil service, state or local government pension relates to a job where Social Security taxes were deducted from your paychecks and one of the following items is true, your Social Security spousal or survivor benefits are exempt from GPO:

  • You filed for and were entitled to spouse, widow or widower benefits before April 1, 2004.
  • Your last day of employment at the job was before July 1, 2004.
  • You paid Social Security taxes on your earnings during the ​last 60 months​ of government service. (Under certain conditions, ​fewer than 60 months​ may be required for people whose last day of employment falls after June 30, 2004, and before March 2, 2009.)

To calculate the spousal or survivor benefit you will receive if you're affected by the GPO, visit the Retirements Benefit page on the Social Security Administration website and scroll to the "Information You Need to Calculate Your Benefits If You Are Affected by the GOP" section.

An employee may receive a pension and Social Security benefits. In this case, the pension might reduce the person’s Social Security benefits. The effect of your pension on your Social Security paycheck is determined by a number of factors, such as whether the pension is the result of your work with a government or another employer that deducts Social Security taxes from your paycheck.