Q: I’ve just started to collect Social Insurance benefits from the United States. I’m a Canadian citizen who worked in the U.S. (with a green card) for over 26 years. I’ve learned that my benefit was reduced due to my CPP; the reduction is the result of the “Windfall Elimination Act”. I understand that this Act is controversial due to its extra-territorial reach? Please advise the status regarding the “elimination” of the Windfall Elimination Act. Would it be worth my time to challenge the deduction of my benefit? The exchange rate these days certainly compensates for the reduction due to the Windfall Elimination Act but there is a principle involved.
A: The Windfall Elimination Provision (WEP) is designed to prevent people who didn’t pay Social Security tax on the majority of their income from receiving disproportionately high Social Security payments. In general, when you work for an employer in the U.S., Social Security tax is taken out of your pay cheque, but if you worked for government organizations or were employed by a foreign company, then this may not be the case.
Essentially, the WEP can reduce Social Security benefits paid to individuals who receive a pension based on income from an employer that didn’t withhold Social Security taxes. This is common for government workers, as well as people who spent much of their lives working for foreign companies.
If you receive a pension based on earnings that weren’t subject to Social Security tax, you could be subject to the Windfall Elimination Provision. Whether or not you’ll be affected depends primarily on how much you earned from other employment that did have Social Security taxes withheld.
The WEP is a complex area of social security and there is a Bill to repeal it that was referred to Congressional Committee on February 21, 2017, H.R. 1205: Social Security Fairness Act of 2017. However, the prognosis for the bill passing in its present form is extremely low.
Until there is something in the regulations to support a challenge, I doubt you would be able to persuade the average Social Security employee to change it since their job is to follow the existing rules. A legal challenge may get some attention but this would be a bigger investment of your money and time. Still, be aware that there are U.S .lawyers who specialize in this area if you do want to pursue it.
The good news is that Old Age Security (OAS) is not used as part of the Windfall Elimination Provision (WEP) calculations—just CPP & QPP. For more information, please see the U.S. Social Security Administration website.
Cleo Hamel is a senior tax specialist with American Expat Taxes in Calgary
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