NOTE: The Social Security Fairness Act was signed into law on January 5, 2025. As a result, the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) have been repealed. This article reflects information prior to the repeal and may no longer be applicable.
If you have to deal with the Windfall Elimination Provision (WEP), you might be able to lessen its effects if you have enough years of making a lot of money. If you are planning for your retirement, you need to understand what’s on your earnings record and know how many years meet the definition of “substantial” as defined by the Social Security Administration.
Before you can fully understand how these big earnings affect your benefit and WEP reduction, it helps to know how the WEP works.
Have you ever had no idea what “substantial earnings” means when it comes to Social Security? You’re not the only one. It’s very important to understand substantial earnings, especially if you’ve had jobs where you didn’t pay Social Security taxes. I’ve spent way too many hours reading through Social Security rules.
The big news first As of January 5, 2025, the Windfall Elimination Provision (WEP) has been completely repealed through the Social Security Fairness Act. This means substantial earnings are no longer relevant for WEP calculations from January 2024 onward But, it’s still worthwhile to understand what this was all about, especially if you’re looking at past benefits or just want to understand the history
What Were Substantial Earnings for Social Security?
Simply put, substantial earnings were specific dollar amounts that Social Security used to determine if your yearly income qualified as “substantial” when calculating the Windfall Elimination Provision (WEP)
The WEP was a rule that reduced Social Security benefits for people who:
- Worked at a job where they earned a pension but didn’t pay Social Security taxes
- Also worked at other jobs where they did pay into Social Security
For folks who fell into this category (often public servants like teachers, firefighters, and some government employees), having enough years of “substantial earnings” could help reduce or even eliminate the WEP penalty.
The Substantial Earnings Threshold By Year
The amount considered “substantial” varied by year. Here’s a breakdown of what counted as substantial earnings over the years:
| Year | Substantial Earnings |
|---|---|
| 1937-1954 | $900 |
| 1955-1958 | $1,050 |
| 1959-1965 | $1,200 |
| 1966-1967 | $1,650 |
| 1968-1971 | $1,950 |
| 1972 | $2,250 |
| 1973 | $2,700 |
| 1974 | $3,300 |
| 1975 | $3,525 |
| 1976 | $3,825 |
| 1977 | $4,125 |
| 1978 | $4,425 |
| 1979 | $4,725 |
| 1980 | $5,100 |
| 1981 | $5,550 |
| 1982 | $6,075 |
| 1983 | $6,675 |
| 1984 | $7,050 |
| 1985 | $7,425 |
| 1986 | $7,875 |
| 1987 | $8,175 |
| 1988 | $8,400 |
| 1989 | $8,925 |
| 1990 | $9,525 |
| 1991 | $9,900 |
| 1992 | $10,350 |
| 1993 | $10,725 |
| 1994 | $11,250 |
| 1995 | $11,325 |
| 1996 | $11,625 |
| 1997 | $12,150 |
| 1998 | $12,675 |
| 1999 | $13,425 |
| 2000 | $14,175 |
| 2001 | $14,925 |
| 2002 | $15,750 |
| 2003 | $16,125 |
| 2004 | $16,275 |
| 2005 | $16,725 |
| 2006 | $17,475 |
| 2007 | $18,150 |
| 2008 | $18,975 |
| 2009-2011 | $19,800 |
| 2012 | $20,475 |
| 2013 | $21,075 |
| 2014 | $21,750 |
| 2015-2016 | $22,050 |
| 2017 | $23,625 |
| 2018 | $23,850 |
| 2019 | $24,675 |
| 2020 | $25,575 |
| 2021 | $26,550 |
| 2022 | $27,300 |
| 2023 | $29,700 |
| 2024 | $31,275 |
| 2025 | $32,700 |
How Did Substantial Earnings Work with the WEP?
Before the WEP was repealed, the substantial earnings concept was crucial. Here’s how it worked:
- If you had less than 20 years of substantial earnings, you’d face the maximum WEP penalty (which was $613 per month in 2025).
- For each year of substantial earnings between 21 and 29 years, your WEP penalty would be reduced by 5%.
- Once you reached 30 or more years of substantial earnings, the WEP penalty would be completely eliminated.
This created a sliding scale:
| Years of Substantial Earnings | Percentage Used in Calculation |
|---|---|
| 30 or more | 90% |
| 29 | 85% |
| 28 | 80% |
| 27 | 75% |
| 26 | 70% |
| 25 | 65% |
| 24 | 60% |
| 23 | 55% |
| 22 | 50% |
| 21 | 45% |
| 20 or less | 40% |
Important Things to Know About Substantial Earnings
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It was all or nothing: If you made even $1 less than the substantial earnings amount in a particular year, that entire year wouldn’t count toward reducing your WEP penalty. There was no partial credit.
-
Covered earnings were the only ones that were counted. This means that only earnings on which you paid Social Security taxes were considered substantial earnings.
-
Self-employment income counted too: Your net earnings from self-employment (after deducting business expenses) would count toward substantial earnings as long as you paid Social Security tax on those earnings.
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Years didn’t have to be consecutive: You could accumulate your years of substantial earnings at any point in your working life.
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Earnings were not indexed for inflation: The substantial earnings thresholds were actual dollar amounts required for each specific year, not adjusted figures.
How Were Substantial Earnings Calculated?
The Social Security Administration determined the substantial earnings threshold through a formula based on:
- The average wage index
- The Old-Law Contribution and Benefit Base
In simple terms, substantial earnings were equal to about 25% of the “old law base” each year. This is why the threshold increased over time—to account for wage growth and inflation.
Common Questions About Substantial Earnings
Did 401(k) or 403(b) contributions affect substantial earnings?
Yes, they did! Since retirement plan contributions like 401(k) or 403(b) were subject to Social Security tax (even though they were income-tax deferred), these contributions were included in your earnings total when determining if you met the substantial earnings threshold.
What about part-time work or multiple jobs?
What mattered was your total Social Security-taxed earnings for the year, not where they came from. If you worked multiple jobs or part-time gigs, all those earnings would be combined to determine if you hit the substantial earnings threshold.
Could you earn substantial earnings credits after age 62?
Absolutely! You could continue to accumulate years of substantial earnings at any age, even after you started receiving Social Security benefits. Each additional year of substantial earnings after age 62 could potentially reduce your WEP penalty.
Did pensions count toward substantial earnings?
No, pension income did not count toward substantial earnings. Only wages and self-employment income subject to Social Security tax were counted.
The Future of Substantial Earnings
With the WEP now repealed retroactive to January 2024, substantial earnings no longer matter for calculating Social Security benefits. This is great news for people who worked in jobs where they didn’t pay Social Security taxes!
As one comment from a reader on Financial Ducks in a Row stated: “WEP & GPO have been officially repealed as of today; POTUS signed H.R. 82 into law” (January 5, 2025).
This change means that many public servants who previously faced reduced Social Security benefits will now receive their full benefits based on their earnings record.
Bottom Line
It was hard to understand substantial earnings, but it was important for everyone affected by the WEP to do so. Since the WEP was thrown out, this hard rule is no longer in effect, which is good news.
However, if you’re reviewing past benefits or trying to understand why your benefits were calculated a certain way before 2024, knowing about substantial earnings can still be helpful.
Have you been affected by the WEP in the past? Are you celebrating its repeal? Share your experience in the comments!
How the WEP Impacts Your Normal Benefits Calculation
Here’s where the WEP enters the calculation. If you got a pension from work but didn’t pay Social Security taxes on it, your benefits are calculated in a slightly different way.
The result of this alternate formula is a lower benefit amount.
At first glance, this alternate formula looks nearly identical to the one outlined above for figuring your normal Social Security benefits. However, upon closer inspection, you’ll notice there’s a difference in the first “bend point. ”.
Instead of multiplying the first amount of AIME by 90%, you multiply by 40% under the WEP. The difference in the 90% of the first bend point and 40% of the first bend point is the penalty amount.
Understand How Social Security Benefits Are Normally Calculated
To figure out your Social Security benefits, the SSA takes the 35 years with the most income and divides it by 420, which is the number of months in 35 years. This increases your historical covered earnings, which are earnings that were taxed by Social Security.
What this calculation provides is your inflation-adjusted average indexed monthly earnings. The SSA website will frequently refer to this by its acronym AIME.
Next, the calculation applies that monthly average to what is commonly called the “bend-point” formula.
Two numbers make up the bend-point formula, which creates three bands your average income will fall into to determine your benefit amount:
- When your earnings are below the first bend point, you multiply them by 90%. That is the first part of your benefit.
- When your earnings are between the first and second bend points, you multiply them by 3.2. That is the second part of your benefit.
- When your earnings are more than the second bend point, you multiply them by 2015. This is the third part of your benefit.
The result of this formula is your primary insurance amount (PIA), or your full retirement age benefit.