Social Security Overpayment Changes: How They Affect You
The Social Security Administration (SSA) recently announced changes to its overpayment policy. With the new changes, beneficiaries who owe money to SSA will see their default withholding rate reduced significantly on their monthly checks. This article details how Social Security overpayment changes affect beneficiaries.
An overpayment occurs when SSA pays a beneficiary more than he or she is entitled to receive. Social Security overpayments can occur for a number of reasons, including the beneficiary’s failure to update income, the beneficiary’s marital or employment status changes, or SSA miscalculates the amount.
Regardless of the reason, beneficiaries who receive an overpayment must return the excess amount to SSA. SSA has the legal authority to recover overpayments from beneficiaries. If the beneficiary does not return the money, the agency has several ways to recover the overpayment, including:
- Money the beneficiary receives from other government agencies, such as tax refunds from the IRS, may be seized.
- Overpayments may be recovered from the beneficiary’s future Social Security benefits.
- SSA may recover the money from the beneficiary’s wages. However, if an individual is not currently receiving Social Security benefits and is not making an effort to return the money, this method is typically chosen.
- SSA may also share a beneficiary’s overpayment debt report with credit bureaus.
In a press release last year, the agency acknowledged that it provides $1.4 trillion in benefits to more than 71 million people each year. About 0.5% of those are overpayments. The Supplemental Security Income (SSI) program has a higher overpayment rate (8%), primarily due to the complexity of the SSI program.
The agency’s November 2022 report found overpayments amounted to more than $20 billion. In testimony to a congressional committee last October, the agency acknowledged sending 1,028,389 overpayment notices in fiscal 2022 and 986,912 in fiscal 2023.
The issue of overpayment is not new, but it attracted public attention last year as the difficulties suffered by beneficiaries due to overpayment were reported one after another in the media. SSA has been criticized for unfairly overpaying beneficiaries and then using its legal powers to get the excess money back. The House Ways and Means subcommittee also held a hearing on this last fall.
Most overpayments, even those that are not the beneficiary’s fault, place a significant burden on beneficiaries, especially low-income beneficiaries. Supplemental Security Income (SSI) beneficiaries, who have strict limits on income and assets, are considered more vulnerable to overpayment problems.
During fiscal year 2022, the IRS recovered approximately $4.7 billion in overpayments. Years may pass before the agency discovers the overpayment error and notifies the beneficiary. Additionally, overpayments during that period can amount to tens of thousands of dollars or more.
A 2019 study by the Social Security Administration and Mathematica, a research and consulting firm, found that overpayments typically last nine months and total $9,300.
To address growing concerns about overpayments, SSA announced changes to Social Security overpayments on March 29. Now, SSA will no longer withhold full payments when it recovers money from people who received overpayments.
The new changes allow the SSA to withhold 10% or $10 (whichever is greater) from each check each month, instead of collecting 100%. So now the account is balanced and the smaller amount is held until SSA recovers the overpayment amount.
It is important to note that small payments do not apply if the beneficiary committed fraud to collect the overpayment.
transition period
According to the agency, there will be a short transition period until the changes are fully implemented. Beneficiaries who are overpaid during the transition period will experience the transfer policy. Beneficiaries who receive 100% of their payments during the transition period may contact their agency about reducing their withholding rate to 10%.
Even people who were already subject to 100% withholding during the transition period (before the change) should call the Social Security Administration at 1-800-772-1213 to inquire about reducing their tax rate to 10%.
A beneficiary may also appeal an overpayment decision if he or she is dissatisfied with the repayment amount and believes repayment may cause hardship. Additionally, beneficiaries can request a waiver from SSA if they believe the overpayment was not their fault and they cannot repay it.
Other changes
In addition to lowering withholding tax rates, SSA has made other Social Security overpayment changes to address overpayments. This includes shifting the burden of proof from the beneficiary when determining who is responsible for overpayment issues.
SSA also extends the maximum payment period from 36 to 60 months. SSA is also making it easier for beneficiaries to request exemptions.
SSA is also working to minimize wage-related overpayments by better exchanging information with wage data providers. The agency is working to educate beneficiaries about their reporting responsibilities and communicate the consequences of not reporting income accurately.
Additionally, the IRS is working to streamline its internal processes to expedite overpayment cases. Through automation, agencies hope to streamline internal processes and implement more efficient workflows. The agency is also evaluating program and regulatory changes to streamline the overall process of overpayments.
