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Social Security Overpayment Changes: How it Affects You

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The Social Security Administration (SSA) recently announced changes to its overpayment policies. With the new changes, beneficiaries who owe money to the SSA could see significantly lower default withholding rates from their monthly checks. This article discusses in detail how Social Security overpayment changes affect beneficiaries.

What is a Social Security overpayment?

An overpayment occurs when the SSA pays the beneficiary more than he or she is eligible for. A Social Security overpayment can be due to many reasons, including the beneficiary failing to update their income, change in marital or work status for beneficiaries, SSA miscalculating the amount and more.

Irrespective of the reason, beneficiaries who receive overpayments have to return the excess money to the SSA. The SSA is legally authorized to recover the overpayments from beneficiaries. The agency has several ways to recover the overpayment if a beneficiary fails to return the money, such as:

  • It can seize money that a beneficiary gets from other government agencies, such as a tax refund from the IRS.
  • It can recover overpayment from beneficiaries’ future Social Security benefits.
  • The SSA may even recover the amount from beneficiaries’ paychecks. However, it usually selects this method if the person is not currently receiving Social Security benefits and is making no effort to return the money.
  •  The SSA may even share the overpayment debt report of a beneficiary with credit bureaus.

Social Security overpayment changes: what was the need?

In a news release last year, the agency admitted that it pays $1.4 trillion in benefits to more than 71 million people annually; of those, about 0.5% are overpayments. The overpayment rate is higher (8%) with the SSI (Supplemental Security Income) program, primarily due to the complexity of the SSI program.

According to the agency’s November 2022 report, it had a balance of over $20 billion in overpayments. During testimony before a congressional committee in October last year, the agency admitted sending 1,028,389 overpayment notices in the 2022 fiscal year and 986,912 in fiscal 2023.

Although the problem of overpayment is not new, it caught peoples’ attention last year after a series of media reports talked about the hardships beneficiaries face due to overpayments. The SSA has been under fire for wrongly overpaying beneficiaries and then using legal power to get the excess money back. The House Ways and Means subcommittee even held a hearing on it last fall.

Most overpayments, including those that occur by no fault of the beneficiaries, place a heavy burden on the recipients, especially low-income recipients. SSI (Supplemental Security Income) beneficiaries who face strict limits on their income and assets are considered more vulnerable to overpayment issues.

During the 2022 fiscal year, the IRS recovered about $4.7 billion of overpayments. Years may have passed before the agency catches an overpayment error and informs the beneficiary. Moreover, the overpayment amount during that period may reach tens of thousands of dollars or more.

A 2019 study by the Social Security Administration and Mathematica, a research and consulting company, found that overpayments usually lasted for nine months and totaled about $9,300.

What are Social Security overpayment changes?

To address growing concerns surrounding overpayments, the SSA announced Social Security overpayment changes on March 29. Now, the SSA will no longer withhold entire payouts when it recovers money from people who were overpaid.

Instead of clawing back 100% from each monthly check, the new changes allow the SSA to withhold 10% or $10 (whichever is greater) per check. So, now, a smaller payment will be withheld until the accounts are balanced and the SSA has recovered the overpaid amount.

It must be noted that smaller payments won’t apply in cases where beneficiaries have committed fraud to collect overpayments.

Transition period

According to the agency, there will be a short transition period until it fully implements the changes. During the transition period, beneficiaries who were overpaid will experience the older policy. Beneficiaries subject to 100% of their payout during the transition period can contact the agency about reducing the withheld rate to 10%.    

Even those already placed in 100% withholding during the transition period (before the changes) need to call Social Security at 1-800-772-1213 to talk about reducing the rate to 10%.

Beneficiaries can also appeal against the overpayment decision if they are not okay with the repayment amount and believe the repayment could result in hardship. Also, beneficiaries can ask the SSA for a waiver if they believe the overpayment was not their fault and they won’t be able to repay it.

Other changes

Besides reducing the withheld rate, the SSA has created other Social Security overpayment changes to address overpayment concerns. These include shifting the burden of proof away from beneficiaries when determining who is at fault for the overpayment issue.

The SSA is also extending the maximum time of payment from 36 to 60 months. The SSA is also making it easier for beneficiaries to request a waiver. 

The SSA is also working to minimize wage-related overpayments by better exchanging information with payroll data providers. The agency is working on educating beneficiaries on their reporting responsibilities, as well as communicating to them the consequences of failing to accurately report their income.

Additionally, the IRS is working to make efficient its internal process to expedite the overpayment cases. The agency hopes to streamline its internal process through automation and implementing more efficient workflows. Also, the agency is evaluating programmatic and regulatory changes to streamline the whole process of overpayment.