It will soon become a lot more expensive for Social Security beneficiaries to correct payment mistakes.
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Life could soon get more difficult for Social Security beneficiaries who are overpaid—even if the mistake isn’t their fault. The Social Security Administration (SSA) announced yesterday that it would resume attempting to recover overpayments through the Treasury Offset Program (TOP)—attempts that had been suspended since March 2020 due to COVID. That program allows the Treasury to withhold tax refunds, among other payments. Those subject to offsets prior to March 2020 could see them resume quickly.
Moreover, beginning next week, the Social Security Administration (SSA) will officially notify Social Security beneficiaries that in the future it will withhold 100% of benefits checks to make up for any overpayments. That’s up from the current overpayment withholding rate of 10% that the Biden Administration put into effect in March 2024 after growing public attention to the hardship caused by 100% withholding when Social Security is the primary income source for so many recipients.
Crucially, the 100% withholding rate will not apply to beneficiaries with an overpayment prior to March 27. Their rate will remain 10%. In addition, the withholding rate for beneficiaries of Supplemental Security Income (SSI)—the minimum payments made to poor seniors and people with disabilities—will remain 10%.
The overpayment withholding rate—often called a clawback—allows the government to recover ”improper” payments. By definition, improper payments can be overpayments (when SSA pays someone more than they are due) or underpayments (when SSA pays someone less than they are due). According to a report from the Social Security Administration’s Office of the Inspector General, for the fiscal years 2015 through 2022, SSA estimates it made nearly $72 billion in improper payments, most of which were overpayments. That represents 0.84% of total Social Security payments during that time. (Obviously, those who were underpaid aren’t affected by either Social Security withholding or Treasury offsets.)
Overpayments
Social Security pays many kinds of benefits, including disability benefits. Most common, however, are retirement benefits—those are intended to replace a percentage of your pre-retirement income based on your lifetime earnings. The amount varies depending on how much you earn during your lifetime and the age at which you first receive your benefits. Typically, the earlier you collect benefits, the lower the amount that you’ll receive. Bottom line: Determining the correct benefit payment amount can be complicated.
Since benefits are heavily dependent on earnings and related dates, overpayments may occur when beneficiaries fail to update information or when Social Security employees do not promptly update records. If you’re wondering why this responsibility might rest with beneficiaries, the agency says it relies “significantly” on them to report changes in their circumstances, including wages, income, and living arrangements. However, beneficiaries don’t always understand or follow through on reporting this information. For instance, in a September 2023 audit, the agency discovered that not all beneficiaries notified the agency about the workers’ compensation or public disability benefits they received, which resulted in improper payments.
However, mistakes are often made by the government itself—specifically when SSA fails to update benefit amounts in a timely manner. Those updates typically occur manually—meaning an employee is responsible for the update—which leaves time and room for human error. According to the Inspector General’s report, “Had SSA implemented effective controls to promptly process information and automated more of its processes, it could have prevented some overpayments.”
There’s a risk that with deep cuts to Social Security’s staffing in the works, delays in manual updates (and hence overpayments) could become more common.
Clawbacks
It doesn’t matter who made the mistake: Once the SSA has determined that an overpayment occurred, it becomes a debt owed to the federal government. This means that the SSA will attempt to get those funds back.
The agency has many options for recovering overpayments, such as direct billing. However, the preferred method, according to the Inspector General, is to withhold benefits if the individual who was overpaid is receiving a monthly payment, like a Social Security check.
According to federal regulations, SSA must notify a benefit recipient that it intends to recover the overpayment. The policy is to send written notification that includes the amount of the overpayment, how and when the overpayment was made, a request for a full refund, and the proposed adjustment if the refund isn’t paid. (If the person who received the overpayment is not currently receiving benefits, SSA will bill them directly or farm the debt out for collections.)
It can be scary for beneficiaries to get that notice—especially, as is often the case when they didn’t know they were being overpaid. Even scarier? There’s no restriction on the lookback period—according to the SSA’s own manual, the agency can calculate an overpayment “that occurred at any time in the past”—so a mistake made decades ago could come back to haunt you. The potential for getting caught up in the system is pretty significant, and many Americans are not prepared to pay back a mistake that they didn’t even know happened.
With the new rule change, Social Security payments will completely stop—taking into account a 100% clawback—for those who have received overpayments. Payments won’t resume until the balance is recovered in full. The change could be devastating for some beneficiaries, including those who rely on Social Security for most or all of their income.
As of September 2024, approximately 68 million people were receiving monthly Social Security benefits, with the majority (54 million) being retirees and their families. Although Social Security was never intended to serve as the sole income source for retirees, many beneficiaries depend on it. Among Social Security recipients aged 65 and older, 12% of men and 15% of women rely on Social Security for 90% or more of their income, while 39% of men and 44% of women receive 50% or more of their income from it.
Concerns about the burden that 100% clawbacks put on beneficiaries resulted in a rule change in March of 2024 when the Biden administration lowered the withholding rate to 10% of a beneficiary’s monthly check (cases of fraud convictions or similar fault determination were not eligible for the lower rate).
Even with the lower rate, the SSA managed to recover billions, announcing that it recouped over $4.9 billion in overpayments during fiscal year 2023 (which runs from October 1 to September 30) under the 10% collection rule. This figure is more than the totals from any of the previous eight fiscal years. However, by the end of the fiscal year, the SSA faced a $23 billion uncollected overpayment balance.
The new 100% withholding rate will apply to new overpayments. However, the withholding rate for current beneficiaries with an overpayment prior to March 27 will remain unchanged at 10%. This 10% rate will still apply to SSI beneficiaries.
Estimates indicate that the change will lead to an increase in overpayment recoveries of approximately $7 billion over the next decade. For context, in 2024 alone, the federal government disbursed $1.35 trillion in Social Security payments (set to rise to $1.6 trillion in 2025).
Medicare Worries
It’s unclear how the withholding rate will impact Medicare. Most senior citizens pay their Medicare Part B premiums through automatic deductions from their Social Security payments (the amounts paid can be found on your SSA-1099 statement). Medicare Part B provides medical insurance, covering doctor’s services, outpatient care, some medical supplies, and preventive services. It’s uncertain whether the clawback will affect the net benefits—after deductions for Medicare Part B premiums— or the gross amount. If it’s the latter, beneficiaries may need to find alternative arrangements to pay for their insurance, making it likely that many beneficiaries could lose coverage.
Appeals
Beneficiaries have the right to appeal the overpayment decision and the amount. Beneficiaries can also request a reduction in the 100% clawback or a waiver. You can find more information at www.ssa.gov.
(Keep in mind that navigating the system is tricky at the best of times and may be more difficult as SSA sheds offices and employees as a result of the current administration’s cost cutting efforts.)
Offsets
Overpayment recovery is not limited to clawback. The SSA announced that it would resume attempts to recover overpayments through the Treasury Offset Program (TOP), which had its collections suspended since 2020 due to COVID.
If you owe a federal or state government-related debt—including an overpayment to Social Security—it can be turned over to TOP, which helps collect the debt by holding back money from a federal payment, such as a tax refund or Social Security check. That process may be referred to as offsetting the payment, administrative offset, or offset.
Not all debts can be collected by TOP. Generally, debts must be $25 or more and must be delinquent and legally enforceable, meaning they cannot be in bankruptcy, forbearance, or under appeal. Federal debts that might trigger offsets include federal income tax delinquencies, student loan defaults, and SSA overpayments. States can also participate by asking the IRS to intercept or offset federal tax refunds for state tax obligations or money owed to state agencies—this includes the authority of the state’s child support enforcement office to collect on outstanding child support debts.
TOP offsets don’t include private debt unrelated to a government agency, such as credit card debt or a delinquent car loan. TOP can’t seize your tax refund check to pay your Comcast bill or to resolve a debt you owe to your accountant.
The law requires only two forms of notice to the beneficiary: one from the original agency claiming the debt, indicating its intent to refer the debt to TOP, and another from TOP once an amount is withheld from the payment.
Once the debt has been collected—or offset—the federal agency sends those funds to the Bureau of the Fiscal Service (part of TOP), which then makes the payments to the appropriate agency (with a few exceptions). Your debt will stay in the TOP database until the original agency instructs TOP to stop collecting it. This typically occurs once the debt has been paid in full, is subject to a bankruptcy stay, or if there are other reasons to pause or halt collection.
TOP has been successful. In fiscal year 2023, the program recovered more than $3.8 billion in federal and state delinquent debts by seizing tax refund checks and other federal payments.
“Resuming collections through the Treasury Offset Program is a critical step in our commitment to being good stewards of taxpayer funds and ensuring the integrity of our programs,” said Lee Dudek, Acting Commissioner of Social Security. “We are dedicated to recovering overpayments while providing individuals with the necessary information and options to address their debts.”
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