Episode 263 – The program 60 Minutes recently took on the problem of overpayments by the Social Security Administration, and raised some interesting points.

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, Problems at the Social Security Administration.

A recent installment of the show 60 Minutes focused on the Social Security Administration, or SSA. The SSA is the government agency responsible for collecting Social Security payroll taxes and paying out Social Security retirement, survivor, and disability benefits.

The segment, hosted by Anderson Cooper, pointed out that a million or so people a year get something in their mail they weren’t expecting: A bill for repayment from the SSA. The surprise invoice often arrives because the SSA had miscalculated their benefits and paid them too much.

The 60 Minutes episode goes through some case examples where low-income taxpayers are facing bills they simply can’t afford to pay. They cited an older Chicago couple where the husband was approved for Social Security Disability, but then recovered enough that he was able to go back to work. He did the right thing when he went back to work: He notified the SSA on the presumption that they would adjust his benefit accordingly. But it took several years for the SSA to figure it all out, and in the meantime, the disability checks kept coming. By the time they reconciled everything, the SSA sent them an invoice for over $50,000, money they didn’t have.[1]

The episode cited a few other similar examples. And they made one interesting point: When it comes to the “claw back” of benefits paid in error, there is currently no statute of limitations.  The show included an example of someone who had been overpaid nearly twenty years earlier.  Despite the timeframe, the SSA was still trying to get their money back.[1]

The SSA uses “claw back” provisions more often than most people realize.  It most commonly occurs in cases involving the so-called “earnings test.” The earnings test applies when you collect Social Security before you reach Full Retirement Age, which for people born 1960 or later is age 67.  Basically, the rules say that if you collect early and continue to work, you may have to send it back later.

In 2024, the limit is $22,320 per year.  If you make more than that, they will reduce your benefit by $1 for every $2 you go over.  So assume your benefit is $2,000 per month and you continue working at your job that pays $50,000 per year.  Under those circumstances you would need to give up your job or forego your Social Security benefit.  You can’t have both.

There is a different, less restrictive test in the calendar year you reach Full Retirement Age: $59,520, and $1 for every $3 you go over.  The earnings test goes away completely on the day you reach Full Retirement Age.  And keep in mind that they are only looking at wages.  Things like interest income, withdrawals from an IRA, etc., don’t count.

When you apply for your benefit, one question you are asked to complete is an estimate of how much you will make in wages over the next 12 months.  And therein lies the problem: it can be very difficult to know exactly how much you’re going to make until you actually receive it.  You could make a low estimate, or just not bother to answer the question at all.  This will often cause an overpayment, but the SSA won’t know about it until they receive your tax data the following year.

So they have to adjust the following year.  They can withhold extra payments the following year to make up the difference.  But sometimes that’s not enough, and that’s where the claw back comes in.  The SSA will sometimes send what’s called a “demand letter” back to the recipient asking them to return some or all of the money.

Even though the 60 minutes segment did not cite any specific examples of this type of claw back, it is far more common than the situations they described.  But one principle applies in every case: it helps to know the rules.  If they pay you something you’re not entitled to, they’re going to want it back.  Even if it’s their fault.

[1] CBS News “How Social Security’s overpayment mistakes can become your responsibility.” Cbsnews.com https://www.cbsnews.com/news/social-security-overpayment-mistakes-can-become-your-responsibility-60-minutes-transcript/  (accessed December 11, 2023)

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