Hello Larry
I am a UK citizen who worked in the US for a number of years. I presently receive SS benefits. I am very shortly eligible for my UK state pension. I am aware the WEP will probably affect may affect my US benefits. I am classed as a Non Resident Alien in the US. SS benefits are my only US income and tax is withheld at source so I do not have to submit US tax returns.

I am unclear if it is worth claiming my UK state pension ( it is significantly lower than full benefit).

1) What is the formula used to calculate the amount of WEP reduction on SS benefit?
2) How do I inform the SSA or do the UK authorities automatically inform them

Thanks

Susan

Hi Susan. Social Security calculates a person's Social Security retirement benefit using their average monthly earnings in their highest 35 earnings years adjusted for average wage growth. The average earnings are then separated into three tiers based on the year the person reaches age 62, and a different percentage return is applied to each tier. The normal percentage return on the first tier is 90%, the percentage return on the second tier is 32%, and the percentage return on third tier is 15%. The resulting sum of the three tiers is determines the person's primary insurance amount (PIA), which is the amount they would receive if they start drawing benefits at full retirement age (FRA).

For example, for a worker who turns 62 in 2022, the first $1,024 of average monthly earnings is multiplied by 90%; earnings between $1,024 and $6,172 are multiplied by 32%; and the balance by 15%. The sum of the three amounts equals the PIA, which is then decreased or increased depending on whether the worker starts benefits before or after full retirement age (FRA).

The Windfall Elimination Provision (WEP) modifies the normal Social Security benefit formula by reducing the percentage return on the first tier from 90% to as low as 40%. For a person reaching age 62 in 2022, that can result in a PIA reduction of as much as $512 (i.e. $1024 x 50%).

However, there is a WEP guarantee provision that limits the amount that a person's benefit can be reduced by WEP to no more than half of the person's non-covered pension. In your case, that means that your U.S. Social Security benefit rate couldn't be reduced due to WEP by more than roughly half of the amount of your UK pension. Therefore, the amount you gain by claiming your UK pension would likely more than offset any amount of WEP reduction applied to your U.S. benefit rate.

Assuming that you do file for and receive a UK pension, you need to report that fact to U.S. Social Security. I'm not sure what type of information is exchanged between the U.S. program and the U.K. program, but nonetheless it is your responsibility to report to Social Security if and when you begin receiving a pension that's based on your earnings that weren't subject to U.S. Social Security taxes.

Best, Jerry