How CPP Impacts Your Spouse’s U.S. Social Security Benefit

Recently, I got a pretty basic question on the website. Well, what seemed basic enough.

Does WEP also apply to a Canadian who lived in the US, never  worked in the US, but collects Social Security spousal benefits due to having an ex-husband who did work in the USA?

I have some good news and I have some even better news. WEP will probably not reduce your benefit.  The best news is that your ex spouse social security benefit should also not be impacted by GPO. Yep, another acronym designed to make social security planning a pain for those working in both the U.S. and Canada. This article discusses how WEP and GPO may impact your social security survivor, spousal, and widow benefits if collecting a foreign pension, like CPP.

What is WEP?

The Windfall Elimination Provision (WEP) may reduce your social security benefit in certain circumstances. WEP is applied when you have earned a pension while not paying social security taxes on the income. This tends to happen in two occasions:

  • You worked for a state or nonprofit organization that provides a social security equivalent pension, but you don’t make social security payments
  • You worked in another country in which the country or the private company you worked for provides a pension.

Many of my clients have worked in both the U.S. and Canada. They worked in Canada and earned a Canadian pension. Of course, while working in Canada they were not contributing to social security. Therefore, their social security benefit will potentially be reduced by WEP. The amount of WEP reduction in social security is based on how many years worked in the U.S, and value of outside pension earned. For a more thorough article on how WEP impacts your own social security benefit, please read “How WEP Affects Social Security”.

What is GPO?

The government pension offset (GPO) reduces social security in cases in which you had a job in which you earned a pension but didn’t pay into social security. However, GPO impacts spousal, widow, and survivor benefits and not your own earned benefit. This is the big difference between GPO and WEP.

Another big difference between WEP and GPO, is how badly GPO can impact your benefit. GPO reduces your spousal, survivor, or widow’s benefit by ⅔ of your non-covered pension. Your non-covered pension is the pension you earned while not paying into social security. GPO can actually eliminate your whole social security benefit. As a reminder, WEP can only reduce your social security by up to 60%

For example, let’s say that you earned a non-covered pension of $2,000 per year. Your wife worked and earned a social security benefit. As a result, you are eligible for a $1,000 spousal social security benefit. GPO however reduces the spousal benefit by ⅔ of $2,000, which is $1,333. This reduction is greater than your actual benefit, therefore eliminating the full spousal social security benefit. That’s a harsh penalty.

However, there is one very large caveat with GPO. From the Social Security Administration (SSA), foreign pensions are exempt from GPO. That’s right, if you have a foreign pension, like the CPP, your social security survivor, widow, or spousal benefit should not be impacted. I have heard of families that have had their social security benefit reduced by GPO because of a foreign pension. Based on the SSA this is incorrect. However, there is a lot of confusion with social security employees in regards to WEP and GPO. I would show the social security employee you are working with the previous document, if he claims your foreign pension should result in a GPO of your social security benefit.

The rest of this article is based on the fact that SSA claims that your foreign pension should not result in a GPO reduction of your survivor, widow, or spousal social security benefit.  However, WEP can still reduce these benefits.

WEP and Spousal Social Security Benefit

If you worked long enough to qualify for U.S. social security benefits, typically your spouse will also qualify for social security.  Even if your spouse has never worked or earned a benefit on her own. This is called the social security spousal benefit. The benefit is half of the qualifying spouse’s social security, assuming both start drawing at full retirement age (FRA). So, if at FRA the qualifying spouse gets $2,000 per month, the spousal benefit benefit would be $1,000 per month. This assumes she also waits until FRA to draw her benefit. If your spouse has worked and earned her own benefit, she would get either the spousal benefit or her own earned benefit, whichever is higher. This happens automatically when applying for social security. In order to receive the spousal benefit, the qualifying spouse would have to already been drawing his own benefit.

WEP reduces the spousal benefit when the qualifying spouse has a WEP reduction on his own benefit. I mentioned earlier that the spousal benefit is ½ the qualifying spouses benefit at FRA. If WEP reduces the qualifying spouse’s benefit, the spouse gets a reduced benefit as well.

An ex spouse social security benefit works esentially the same way as a spousal benefit. As long as you were married to someone for at least 10 years, are unmarried, and over age 62, you can qualify for a spousal benefit based on your ex-spouse’s benefit. The question I got above was asking if WEP will reduce her benefit based on her ex-spouse’s benefit. WEP should not lower her spousal social security benefit unless her ex spouse has a WEP reduction on his social security benefit. Also, as noted above she should not have a GPO reduction because foreign pensions are exempt from GPO.

Once, the qualifying spouse passes away, WEP actually goes away. More on that next.  

WEP and Survivor Social Security Benefits

If you are married and both you and your spouse are eligible to collect social security, a survivor benefit can be collected once the first spouse passes. The remaining spouse will get the higher of the two social security benefits. The lower of the two benefits will go away.

Let’s use the previous example again, where the higher earning spouse was collecting $2,000 and his spouse was collecting $1,000. If he passes away, now her new benefit will be $2,000 and the $1,000 benefit she was collecting is eliminated. However, if that $2,000 had a WEP reduction, her benefit will be even higher. WEP is eliminated for the survival social security benefit. If he had a $400 WEP reduction on his social security because of CPP, she will now get a $2,400 per month benefit. However, if she passes away first, his social security benefit will still be impacted by WEP.

Now, let’s discuss what happens if a spouse passes away prior to social security eligibility.

WEP and Widow Social Security Benefits

A survivor social security benefit is paid when a spouse passes away and the surviving spouse is eligible for social security. The widow’s benefit is when the surviving spouse is not eligible for social security yet. The widow’s benefit is very similar as the surviving spouse benefit. The surviving spouse will be eligible for the higher earning spouse’s social security benefit. There are three big differences between the widow’s benefit and the surviving spouse social security benefit:

  • A widow can start collecting a widow’s social security benefit as early as age 60
  • You can actually start collecting a widow’s social security benefit and later switch to your own benefit if higher
  • You can’t collect a widow’s social security benefit if you remarry prior to age 60

The question is, how does WEP impact a widow’s social security benefit? The answer is that it really shouldn’t. WEP dies when the higher social security benefit collector who is subject to WEP passes away. Therefore, your widow’s social security benefit should not be impacted by WEP.

Conclusion

There is really only one situation in which WEP or GPO should negatively impact your spousal, survivor, or widow social security benefit. Your spousal social security benefit will be reduced by WEP, if your benefit is based on a spouse who has a social security benefit already impacted by WEP. You will get a lower spousal benefit, because your spouse has a lower benefit because of WEP.

GPO should not impact your spousal, widow, or surviving spouse benefit if you are also collecting CPP. According to social security, a foreign pension is exempt from the GPO rules. Like I mentioned though, I have heard of people who have a foreign pension in which social security claims it should be impacted by GPO. In that case, it is important to have this document handy, which shows foreign pensions are not subject to GPO.

Disclaimer:  I’m a financial advisor, but probably not your advisor and don’t know your complete financial picture.  Therefore, please use this as education only and I strongly suggest talking with your financial advisor or tax preparer before implementing any of the above strategies.

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