Find Out What Happens When the Social Security Administration Overpays a Social Security Beneficiary
Edward A. Zurndorfer–
The Social Security Administration (SSA) sends a “legally defined overpayment” (LDO) letter to Social Security beneficiaries who the SSA believes have received too much in monthly Social Security benefit payments. In its LDO letter, the SSA explains to the beneficiary that it wants a return of these excess benefit payments. In some manner, the SSA will recover the excess benefit payments. This column discusses what triggers an SSA-oriented LDO overpayment notice, how an affected Social Security benefits recipient can request reconsideration, and how the SSA recovers the excess benefit payments.
What Triggers an SSA LDO Letter?
An overpayment may be the result of the SSA’s failure to apply deductions to reduce, suspend, or terminate Social Security monthly benefits. For example, a recipient of Social Security retirement benefits who has not reached full retirement age (FRA) may have earned more than the relevant annual earnings limit (that is, the individual violated the annual Social Security “earnings” test” for that year). The SSA was not aware of the excess earnings until after the Social Security monthly benefits had been paid.
Another example would be in the case of a CSRS-covered employee who is collecting Social Security retirement benefits. While working in federal service, the employee’s Social Security benefits are not reduced due to the Windfall Elimination Provision (WEP). But once the employee retires from federal service and he or she becomes a CSRS annuitant, the WEP applies to the annuitant’s Social Security retirement monthly benefit. In fact, when the employee retires from federal service, he or she needs to contact the SSA in order to let the SSA know that the employee has retired from federal service. At that time, the SSA will apply the WEP to the annuitant’s Social Security benefits. In the event the retired employee does not inform the SSA or if they do but SSA does implement the WEP for one reason or another, then once the SSA determines that the WEP applies, the SSA will send an LDO letter to the CSRS annuitant asking for a repayment for all overpaid Social Security monthly payments retroactive to the month after the employee retired. The annuitant will be asked by the SSA to make a lump sum payment of the excess Social Security retirement monthly benefits. The following example will help illustrate:
Jan is a CSRS annuitant who retired from federal service on January 3, 2020 at the age of 68. When Jan became full retirement age (age 66) in 2017, he applied for and started receiving his full Social Security retirement benefit of $1,500 per month. During his lifetime, Jan had worked in a few jobs covered by Social Security and also served in the military for four years, earning enough Social Security credits that made him eligible for a Social Security retirement benefit. However, Jan had earned far less than 30 years of “substantial” Social Security earnings, resulting in his Social Security retirement subject to the WEP. Jan asked his financial advisor to determine how the WEP effect will reduce his monthly Social Security retirement benefit. The advisor determined that the WEP will reduce monthly benefit by $700 a month but that the WEP reduction will take effect until the month that Jan retires from federal service and begins collecting his CSRS annuity. During the period January 3 through December 31, 2020, Jan received his full $1,500 Social Security retirement benefit. After retiring in January 2020, he forgot to contact and report to the SSA he had retired from federal service. When he reported to the SSA in early January 2021 that he had retired from federal service, the SSA sent him an LDO letter asking for a lump sum repayment of 12 months times $700 per month or $8,400 for the overpayment due to the WEP.
Note that the form that must be submitted by a recipient of a government pension in which the recipient was not covered by Social Security (such as the CSRS annuity) is Form SSA-3885 (Government Pension Questionnaire).
Filing a Request for Reconciliation
If a Social Security beneficiary/recipient of an LDO letter does not agree with any portion of the letter, he or she should download Form SSA-561-U2 (Request for Reconsideration), fill out the form. and submit as soon as possible. Completing the request within 30 days is highly recommended because filing a request for reconsideration as soon as possible may avoid a disruption of benefits.
How the SSA Gets the Requested Overpayment Funds Back
If the SSA does not hear from the beneficiary/recipient within 30 days of sending an LDO letter, the SSA will withhold the beneficiary’s full monthly benefit until the overpayment is recovered. A lesser holdback may be requested by the beneficiary but may not be approved by the SSA. If the beneficiary is no longer receiving benefits or a reduced benefit (such as Jan in the example in which his monthly Social Security benefit is being reduced $700 because of the WEP), the SSA will request a lump sum payment within 30 days. A beneficiary who is unable to pay back the full amount within 30 days should download Form SSA-634 (Request for Change in Government Recovery Rate) as soon as possible.
In the event of a failure to make the imposed payments, the SSA may recover the overpayment from the beneficiary’s federal income tax return refund or from imposing a lien on the beneficiary’s salary or wages.
Is a Waiver of an Overpayment Possible?
There is another option open to a Social Security beneficiary/recipient who receives an LDO letter from the SSA and who agrees about the overpayment but believes the overpayment should not be required. The beneficiary can file Form SSA-632–BK (Request for Waiver of Overpayment Recovery), the SSA may waive all or a portion of the beneficiary’s overpayment if the following conditions are met: (1) the beneficiary/recipient was not at fault; and (2) repaying the full overpayment would prevent the beneficiary/recipient from paying necessary living expenses or would otherwise be unfair. Note that Form SSA-632-BK is lengthy and requires the beneficiary from whom the overpayment is due to disclose his or her financial assets. If a full waiver is not granted, it may be possible to obtain a partial waiver.
If a waiver is denied, the beneficiary may request a reconsideration of the denial. After another denial, the next step may be requesting an SSA hearing. Once all requests have been denied, it is likely that the overpayment will have to be paid by either a holdback of current benefits or repayment from another source of funds.
When Social Security Administration Overpays
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.