President Trump came into office with lots of promises for Social Security recipients. Specifically, the President vowed to end taxes on Social Security benefits and to protect the program from cuts.
While the tax pledge didn’t quite become a reality, the Trump Administration did offer a new additional $6,000 tax break for seniors that will provide some financial relief from big IRS bills.
The Trump Administration has also taken some steps that it claims are aimed at fighting waste, fraud, and abuse in Social Security. While these changes are controversial, the fact is that the benefits program is facing imminent financial trouble, and something needs to be done.
One move the Administration is making, as part of broader efforts to shore up Social Security, includes changing the rules for the clawback of overpayments.
Unfortunately, while this policy may sound good on the surface, it could have serious unintended consequences. Here’s what the President has changed, along with some details about how the shift in the clawback policy could impact retirees.
From Biden to Trump: The Shift in Overpayment Recovery
In some cases, Social Security recipients end up getting overpaid. This can happen for many reasons, including errors in Social Security’s data or a failure on the part of beneficiaries to update Social Security when their circumstances change.
When overpayments happen, Social Security can “claw back” or recover the extra money it sent out to recipients — even if the Social Security Administration made the mistake entirely on its own. It can try to recover the erroneously paid funds by withholding some portion of current benefits. The big question is — what is the appropriate percentage?
Under the Biden Administration, it was set at 10%. So, someone who got extra Social Security money would be notified of the overpayment and have 10% taken out of their current checks until the extra money was paid back to the government.
The Trump Administration decided to change that rule, though. Initially, the Administration changed the clawback withholding rate to 100%. This would mean anyone who had been overpaid would lose all of their benefits. This would have saved the government a substantial amount of money, with the Office of the Chief Actuary estimating roughly $7 billion in savings over the next 10 years.
“We have the significant responsibility to be good stewards of the trust funds for the American people,” Lee Dudek, acting commissioner of Social Security, said in a statement. “It is our duty to revise the overpayment repayment policy back to full withholding, as it was during the Obama administration and first Trump administration, to properly safeguard taxpayer funds.”
However, there was a lot of public outcry, so the Trump Administration backed down and agreed to a 50% clawback rate instead of 100%. The new 50% withholding will apply to overpayments to benefits recipients who receive notice after April 25. The majority of prior overpayments will be subject to the old cap, according to the AARP.
Some retirees could still be hurt by the policy shift
While losing 50% of benefits isn’t as bad as losing 100% of benefits, even this clawback rate could be a big problem that affects many retirees.
In fact, an estimated one million beneficiaries collectively owed around $23 billion in overpaid benefits at the end of fiscal year 2023. Those retirees could face losing half their Social Security income until they’ve paid back all the overpayments. This could mean big financial trouble.
In fact, Connecticut Representative John B. Larson released a comprehensive statement warning of the dangers of clawing back too much money from those who were overpaid for their benefits.
“The change could devastate some program recipients, which is why some Republican members of Congress were against a previous iteration of the policy,” the statement read. “Sen. Rick Scott (R-Fla.), a conservative Trump ally, warned in 2023 that having a 100 percent “clawback” rate – where the agency withholds 100 percent of a beneficiary’s payments until past overpayments are rectified – “would bankrupt an untold number of elderly Floridians.”
These warnings are backed up by data, given the fact that recent research from Nationwide revealed that over half of all adults in the U.S. who either expect Social Security benefits or who actively receive them wouldn’t be able to financially cope with missing even half a payment.
This half-payment is exactly what the new policy will do. Since most errors are made by Social Security and many people don’t even realize they are being overpaid, taking 50% of benefits for months or even years until an overpayment is corrected could be absolutely devastating to a retiree’s financial security and could occur through no fault of their own.
Because of the financial shockwaves, many retirees will suffer due to this policy, so even though saving Social Security all this money to shore up the trust fund seems like a good idea on the surface, the unintended consequences could be devastating and can’t be overlooked.
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