The windfall elimination provision is a rule that reduces Social Security retirement or disability benefits for those who receive pensions from work not covered by Social Security taxes. The provision most commonly affects government employees, people working in other countries and employees of nonprofit organizations.
The motivation for the windfall elimination provision involves the way that the Social Security Administration calculates benefits. The normal formula favors low-paid workers by giving them a higher percentage of their earnings in monthly benefits. Under this system, those earning a pension in work outside the Social Security system who also work part time at a Social Security-covered job would receive a windfall in relatively high Social Security benefits in addition to their pension. The windfall elimination provision is designed to eliminate this discrepancy by using a different formula with a reduced percentage of earnings to calculate benefit payments for those with non-Social Security pensions.
Under the windfall elimination provision, workers can lose up to half of the amount of their non-Social Security pension from their Social Security benefits but not more. The provision does not affect those with at least 30 years of substantial earnings covered by Social Security. The windfall elimination provision also affects benefits that Social Security pays to dependents, but it does not affect survivors' benefits.