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WEP calculation and partial year worked in UK

WEP calculation and partial year worked in UK

Old Jun 21st 2024, 9:17 am
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Default WEP calculation and partial year worked in UK

Hi, yet another WEP question
I am already receiving Uk pension almost entirely based on voluntary contributions , with only a few months of work in various years. How does SSA treat those months in their calculations of work related income versus"unearned income" from voluntary contributions? I know I will be subject to some WEP as my income levels in most years do not meet the exemption threshold.
Has anyone asked for a detailed explanation of their WEP calculation when they claim their US social security?
Is the exchange rate calculated once, and WEP fixed on that date, or does it take into account annual increases in UK pension in future years going forward?
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Old Jun 21st 2024, 7:25 pm
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Default Re: WEP calculation and partial year worked in UK

The part of the UK state pension that is based on voluntary contributions is not subject to WEP. That much is clear. However after that it can get fuzzy because of an endless list of scenarios. The short answer is that (as always) it is a complex calculation, in this case involving two countries complicated systems, and it is unlikely that any of us would ever be able to prove that the WEP calculation it is right or wrong beyond very broad statements that they have or have not taken into account non earnings based years.

The WEP calculation is done once at whatever exchange rate is in force on the day of the calculation. It is deducted from whatever your social security would be on that date, and because social security adjust that net amount each year for inflation your WEP deduction is effectively increased as well such that the dollar amount increases although the overall percentage remains the same. That more or less increases the WEP amount to take into account any increase in the UK state pension (assuming both countries inflate the pension by roughly the same amount).

In general each NI year will be categorized as Full or not. If not a Full year then it does not contribute to the UK state pension and is irrelevant for WEP purposes. You should be able to view your NI record (on a year by year) basis online. That will identify if each year is Full or not, and provide a few details as to how much of that year was earnings based and how much was based upon credits which were/are awarded for a number of reasons but most usually because you were still at school between the ages of 16-18 (back in the 70s and 80s), unemployed, disabled, or a stay at home parent; or because of voluntary contributions. You could also be credited with NI contributions without actually paying NI if your earnings were within a specified (low) range.

A Full year based upon earnings is a year in which you earned above a specified threshold. For 2024 that is a little less than £6,500 and is adjusted each year for inflation, so progressively less than that as you go back in time. Any year in which your part time earnings exceeded the threshold will be subject to WEP because it is wholly based upon foreign earnings. A Full year based entirely upon credits or voluntary contributions will not be subject to WEP because there are no foreign earnings involved. It gets fuzzy with years that have a mix of earnings and credits or voluntary contributions. I honestly don’t know what they do with those years, but my hunch is they will be partially WEP’d because there are foreign earnings involved. There is enough information for them to prorate each of those years, and the form you have to fill in allows for the earnings timeframe to be carved out from the credits.

It’s possible that they simply take the proportion of earnings based years to non earnings based years and apply that to the total pension amount, to determine what percentage is WEPable, but due to the way the UK pension is calculated for those with pre 2016 earnings that may result in a WEP calculation that is generous, or harsh. Way too complex to get into, but anyone who had a SERPs related supplement and/or COPE deduction, or who spent a large proportion of their career in the UK with more than 35 years of average or below average earnings may be impacted. Many of us on this forum will fall into one or more of these categories.

Take a look at the WEP form and make your own conclusions. https://www.ssa.gov/forms/ssa-308.pdf.

Last edited by Glasgow Girl; Jun 21st 2024 at 9:09 pm. Reason: Included SSA WEP questionnaire
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Old Jun 22nd 2024, 3:54 am
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Default Re: WEP calculation and partial year worked in UK

Interesting. I didn’t know years from voluntary contributions didn’t apply to WEP. I did some Googling on this and found that there’s a bill going through Congress that may get rid of WEP completely. Anyone familiar with this ?

https://www.congress.gov/bill/118th-...ecember%202023.

With the financial state of social security I’d be surprised if this becomes law, but may be worth keeping an eye on.
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Old Jun 22nd 2024, 4:00 am
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Default Re: WEP calculation and partial year worked in UK

Every few years they try to repeal the WEP law, but it never gets out of committee for a vote. We can live in hope though. But in any case when you dive into the WEP details it’s actually not as unfair as it seems on the surface.
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Old Jun 22nd 2024, 4:01 am
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Default Re: WEP calculation and partial year worked in UK

Originally Posted by Alan17
Interesting. I didn’t know years from voluntary contributions didn’t apply to WEP. I did some Googling on this and found that there’s a bill going through Congress that may get rid of WEP completely. Anyone familiar with this ?

https://www.congress.gov/bill/118th-...ecember%202023.

With the financial state of social security I’d be surprised if this becomes law, but may be worth keeping an eye on.
Similar bills have come up in the past and there is very little incentive to progress them out of whichever committee. Odds of this one progressing are probably worse than for Reform forming the next UK government.
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Old Jun 22nd 2024, 6:34 am
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Default Re: WEP calculation and partial year worked in UK

My wife and I have both examined our NI record and it is very clear which full years were from voluntary contributions and which ones were from work. When my wife claimed 2 or 3 years ago she completed that form, SSA 308, that GG provides a link to above.

I probably won’t bother with the form because I have 2 UK private pensions that will “WEP” me to the max against the 25 years of SS contributions I have.
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Old Jun 22nd 2024, 10:32 pm
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Default Re: WEP calculation and partial year worked in UK

Thank you so much for such a detailed answer! It's really helpful!
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Old Jun 23rd 2024, 2:51 am
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Default Re: WEP calculation and partial year worked in UK

Originally Posted by Glasgow Girl
Every few years they try to repeal the WEP law, but it never gets out of committee for a vote. We can live in hope though. But in any case when you dive into the WEP details it’s actually not as unfair as it seems on the surface.
By way of addition, the majority of persons affected by WEP are American, retired government employees. Although aimed at the perception of “double dipping bureaucrats” it hits mostly school teachers. Over the past decades, there has been a tendency for government pension programs to change to integrate with social security. So the pool of Americans subject to WEP has been going down by attrition.
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Old Jun 24th 2024, 11:59 am
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Default Re: WEP calculation and partial year worked in UK

Didn’t know this WEP legislation had been considered before. Not surprising it hasn’t passed.

Question for those in the know. In my case I’ll have most of my payments as voluntary payments. When you’re reporting the income on your US tax return and dealing with US social security, do you just pro rata the amount ? Or is there a process to report the voluntary/involuntary amount to the US social security people so they apply the right amount of WEP? I’d assume they would want some official documentation for this.

I’m a couple of years from this problem but would be interested to hear how others have approached it.
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Old Jun 24th 2024, 4:21 pm
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Default Re: WEP calculation and partial year worked in UK

All of the UK state pension is taxed by the USA regardless of whether it was earned through paid earnings, credits or voluntary contributions, therefore you report all of it on your US tax return.

When you apply for SS retirement benefits they will ask you if you expect to receive any kind of foreign pension in the future, and if so you will be required to complete this form (for each pension) in order that they can assess what the WEP deduction will be. https://www.ssa.gov/forms/ssa-308.pdf. That will include private pensions in addition to the state pension.

The WEP deduction is calculated and applied to whatever you would receive at your full SS retirement age, and that net amount is then reduced (or increased) if you collect before (or after) your full retirement age. That means that if collecting at age 62 your WEP deduction will be a lot less than if you collect at age 70. It also means that the maximum WEP limit is effectively decreased (or increased) accordingly.

Something to consider although in reality we should all likely decide when to take social security based upon other factors such as life expectancy, the best age at which to start receiving a boost in income; and accept that the WEP deduction is what it is. Regardless, anyone living beyond about 80 years of age (plus or minus depending upon date of birth) will most likely be better of deferring their social security whether WEP’d or not, but there are some scenarios where it will be better to take it as early as possible, the most common one being anyone who will likely inherit a survivor’s benefit larger that their own. A survivors benefit is received at 100%, is not subject to WEP and replaces the existing benefit.

Last edited by Glasgow Girl; Jun 24th 2024 at 4:28 pm.
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Old Jun 24th 2024, 7:00 pm
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Default Re: WEP calculation and partial year worked in UK

Originally Posted by Alan17
Didn’t know this WEP legislation had been considered before. Not surprising it hasn’t passed.

Question for those in the know. In my case I’ll have most of my payments as voluntary payments. When you’re reporting the income on your US tax return and dealing with US social security, do you just pro rata the amount ? Or is there a process to report the voluntary/involuntary amount to the US social security people so they apply the right amount of WEP? I’d assume they would want some official documentation for this.

I’m a couple of years from this problem but would be interested to hear how others have approached it.
GG gave the answer to the question you asked about what to report on your income taxes. I think what you really should be asking is what figure to report on your SSA 308 when applying for SS and when my wife applied for her SS she used the pro rata amount of OAP plus a printout of her NI record showing the number of years of voluntary contributions and gross amount of OAP. This was done through the FBU at the London Embassy and the agent said that they would get the information directly from the DWP anyway, but I don’t know how it works while applying through the SSA in the USA.
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Old Jun 28th 2024, 4:50 am
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Default Re: WEP calculation and partial year worked in UK

Originally Posted by durham_lad
GG gave the answer to the question you asked about what to report on your income taxes. I think what you really should be asking is what figure to report on your SSA 308 when applying for SS and when my wife applied for her SS she used the pro rata amount of OAP plus a printout of her NI record showing the number of years of voluntary contributions and gross amount of OAP. This was done through the FBU at the London Embassy and the agent said that they would get the information directly from the DWP anyway, but I don’t know how it works while applying through the SSA in the USA.

Yes, although I didn’t know it, that’s what I was looking for. Thanks for the info.
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Old Jul 9th 2024, 4:13 pm
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Default Re: WEP calculation and partial year worked in UK

I just got a WEP amount from social security. They called and asked UK state pension amount on the month I intend to take US social security as basis for WEP calculation. They also asked proof the gross UK amount without tax taken off. I submitted last year’s IPC147 and this year’s bank account transaction record. They accepted it. Hope WEP calculation is one time only as Glasgow Girl says.
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Old Jul 9th 2024, 6:59 pm
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Default Re: WEP calculation and partial year worked in UK

Originally Posted by geak
I just got a WEP amount from social security. They called and asked UK state pension amount on the month I intend to take US social security as basis for WEP calculation. They also asked proof the gross UK amount without tax taken off. I submitted last year’s IPC147 and this year’s bank account transaction record. They accepted it. Hope WEP calculation is one time only as Glasgow Girl says.
Pretty sure it is a one time calculation. My wife started her SS 3 years ago and only the 1 calculation even though her OAP rises each year.

PS
What is an IPC147?
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