The Government Pension Offset [GPO] & The Windfall Elimination Provision [WEP]
If you receive a pension from a federal, state or local government agency and did not pay the social security tax on your earnings, your social security benefits can be reduced in two ways.
Benefits due on your own record can be reduced under the Windfall Elimination Provision [WEP] from 90% to 40% of the Tier 1 level [Tier 1 for 2007 is the first $680.00 of Average Indexed Monthly Earnings (AIME) or $612.00] The amounts for each Tier changes annually. Tiers 2 & 3 aren't impacted by WEP. It is very important for one to understand how the social security benefit is computed - see AIME page.
Spousal benefits [including widow(er)] will be reduced under The Government Pension Offset [GPO] Provision by 2/3rds of the amount of your pension. In most cases, 2/3rds of the pension will be more than the amount due as a wife or husband; but, not necessarily more than the amount due as a widow[er].
If both members of a couple will receive a pension from non-covered earnings, GPO will most likely reduce spousal benefits to zero for both. In these cases, it may be beneficial to work under social security in second jobs [especially teachers] because one will still receive 40% of the first Tier and the full amounts of Tiers 2 &3 on their own records. A return of 40% is still an excellent return! Also, one will maintain eligibility for disability, dependents and survivor benefits.
Note: Some school districts are requiring substitute teachers to accept participation in a "variable annuity" in lieu of paying FICA. The teacher's contributions are "pre-tax" and the school districts contribution is less than the FICA tax. While this arrangement is a "good deal" for the school district, it may be a "lousy" deal for substitute teachers since contributions usually earn only 2-3% instead of 40-90% under social security; and, one won't maintain eligibility for disability, dependents and survivor benefits.
For information on workshops or personal consultation fees, send an email to benefits @ govtbenefits.com