Social Security Q&A: Will Taxes on My Pension Increase My Social Security Benefits?

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Question: I am a retired teacher in Arizona. Federal taxes are taken out of my pension payment, but they are not reported to Social Security account. Why is this? I thought the taxes would be used to increase my contributions for my account. I will not be getting Social Security for at least six years.

Answer: Your earnings record, which determines your Social Security benefit, is based on FICA contributions you make on your labor earnings. None of the money you earn in interest, withdraw from your 401(k) or receive in a pension is subject to FICA taxation, so none of it counts for determining your Social Security benefits.

My concern with your situation, though, is whether this pension you are now collecting is coming from non-covered employment. In other words, was your teaching job covered by Social Security? If not, your Social Security retirement benefit will be zapped by the Windfall Elimination Provision (WEP) and any benefits you might be able to collect based on the work record of a current or former spouse, who is deceased or from whom you divorced after 10 years of marriage, will be zapped by the Government Pension Offset (GPO). Sorry about this bad and scary news. But I don’t want you operating under false pretenses about what you will receive.


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