Windfall Elimination Provision!

[berkaz6370]

I am 59 years old, retired and planning to live the rest of my life in Japan.
I paid 17 years into the Kosei Nenkin and 11 years into Social Security system.
I expect to receive monthly in Japan 90000 Yen (if start taking at 65) and in the US about 1300 dollars (if start taking at 62).
How will the Windfall Elimination Provision affect my Japanese and US pension benefits?
Which of the 2 pensions should I start taking first? Anyway to avoid the WEP reductions?
Any advise or feedback on my case would be much appreciated.

[ClearAsMud]

I don't think Japan has the equivalent of WEP. I would imagine that as a resident of Japan you simply pay taxes based on the public-pension rate for the combined benefits. WEP is a US thing that actually lowers the benefits you receive before taxation kicks in (anyone else know of something similar elsewhere?).

There's an easy-to-follow summary of WEP at the American Citizens Abroad website:
https://www.americansabroad.org/windfal ... provision/

Cuts to SS benefits can range up to 50% (the more years you pay into SS, the lower the impact). A site referenced under a different thread on this forum (search for WEP) claims that Kokumin Nenkin isn't/shouldn't be subject to WEP because it's based on residence and not employment, but leaving aside the validity of that argument, Kosei Nenkin is indeed based mostly on earnings and so would fall under WEP.

Calculations are apparently complex, and it would probably be hard for anyone without access to your detailed employment history etc. to answer your questions. Go through the following two pages to maybe(!) get an idea of your reduced US SS benefit when you also receive a foreign pension:

1) The WEP Screening Tool for foreign pensions
https://www.ssa.gov/international/wep_intro.html

This is supposed to help you see if WEP actually applies to your case. If the tool determines that WEP will apply (it seems to for you, but a proxy you isn't the real you), a link is provided to:

2) the Windfall Elimination Provision (WEP) Online Calculator
https://www.ssa.gov/benefits/retirement ... pjs04.html

Entering some semi-random figures into the calculator -- a non-SS pension of $900 a month and a uniform annual US income of $60,000 for 11 years beginning in 2003 -- results in an estimated monthly SS benefit of $595 to you after WEP, with $1361 monthly for a surviving spouse at full retirement age (WEP doesn't apply to survivors benefits). This could be on the low side since you say you expect a nominal full benefit of $1300 a month at 62. But I have to say, I'm just a bystander here. You'll have to run the numbers for a variety of possible situations to see what might work best for you.

[berkaz6370]

Thank You So Much for Your Feedback. Much Appreciated

[Tkydon]

In Japan, there is no WEP. There is only the Public Pension Deduction, in addition to your other regular allowances and sdeductions.


Pension Income - Such as Japan National Pensions 国民年金、国民年金基金、Overseas Pensions, etc..

Pension income is aggregated with other Aggregate Income, and taxed accordingly. You get to apply all Allowances and Deductions, Furusato Nozei, Medical Cost Deductions, and if applicable the additional Public Pension Deduction, the calculation of which you can see in this document

https://www.tax.metro.tokyo.lg.jp/book/ ... k2021e.pdf

Page 8 - Calculating the Public Pension Plan Deduction (Calculation Table)
Individuals under the age of 65 and Individuals aged 65 and up

The remaining Aggregate Taxable Income is then taxed according to the Standand Aggregate Marginal Tax Rates.

Income Tax Rates 総所得金額の合計、復興特別所得税、住民税の税率
Band Marginal Tax rate (％) National - Reconstruction - Residents' Taxes = Total
Under 1,949,000 5% 0.105% 10% = 15.105%
1,950,000 3,299,000 10% 0.21% 10% = 20.21%
3,300,000 6,949,000 20% 0.42% 10% = 30.42%
6,950,000 8,999,000 23% 0.483% 10% = 33.483%
9,000,000 17,999,000 33% 0.693% 10% = 43.693%
18,000,000 39,999,000 40% 0.84% 10% = 50.84%
Over 40,000,000 45% 0.945% 10% = 55.945%


3. Pensions and Annuities Other Than 2. Above

Annuities provided by Insurance Companies, and other Pension Income that does not qualify for the additional Public Pension Deduction, are taxed the same as 2. above but without the additional Public Pension Deduction.


You may have a combination of 2. and 3. above, so may be entitled to the additional Public Pension Deduction on part of your total Pension Income. See

Page 8 - Calculating the Public Pension Plan Deduction (Calculation Table)
Individuals under the age of 65 and Individuals aged 65 and up

[Teflon]

I am 59 years old, retired and planning to live the rest of my life in Japan.
I paid 17 years into the Kosei Nenkin and 11 years into Social Security system.
I expect to receive monthly in Japan 90000 Yen (if start taking at 65) and in the US about 1300 dollars (if start taking at 62).
How will the Windfall Elimination Provision affect my Japanese and US pension benefits?
Which of the 2 pensions should I start taking first? Anyway to avoid the WEP reductions?
Any advise or feedback on my case would be much appreciated.

ClearAsMud is correct. Calculating the WEP is complex. However, as long as you've put in less than 21 years of Social Security contributions the calculation is actually relatively simple: at the beginning of every month, convert your Japanese pension payment to USD based on the current exchange rate and divide it by two. So 90,000 yen at today's exchange rate equals $711 divided by two equals $356. Compare that with the maximum possible WEP deduction for 2022 which is capped at $512 and take the lower of the two numbers which is $356. Now deduct that amount from $1300 and your adjusted SS payment becomes $944. That's it!

[berkaz6370]

Thank you for the information. Very helpful. If I understand well, under the WEP, it is only my SS benefit which get reduced and my Japanese kosei nenkin remains the same.

[dcon]

I don't think Japan has the equivalent of WEP. I would imagine that as a resident of Japan you simply pay taxes based on the public-pension rate for the combined benefits. WEP is a US thing that actually lowers the benefits you receive before taxation kicks in (anyone else know of something similar elsewhere?).

There's an easy-to-follow summary of WEP at the American Citizens Abroad website:
https://www.americansabroad.org/windfal ... provision/

Cuts to SS benefits can range up to 50% (the more years you pay into SS, the lower the impact). A site referenced under a different thread on this forum (search for WEP) claims that Kokumin Nenkin isn't/shouldn't be subject to WEP because it's based on residence and not employment, but leaving aside the validity of that argument, Kosei Nenkin is indeed based mostly on earnings and so would fall under WEP.

Calculations are apparently complex, and it would probably be hard for anyone without access to your detailed employment history etc. to answer your questions. Go through the following two pages to maybe(!) get an idea of your reduced US SS benefit when you also receive a foreign pension:

1) The WEP Screening Tool for foreign pensions
https://www.ssa.gov/international/wep_intro.html

This is supposed to help you see if WEP actually applies to your case. If the tool determines that WEP will apply (it seems to for you, but a proxy you isn't the real you), a link is provided to:

2) the Windfall Elimination Provision (WEP) Online Calculator
https://www.ssa.gov/benefits/retirement ... pjs04.html

Entering some semi-random figures into the calculator -- a non-SS pension of $900 a month and a uniform annual US income of $60,000 for 11 years beginning in 2003 -- results in an estimated monthly SS benefit of $595 to you after WEP, with $1361 monthly for a surviving spouse at full retirement age (WEP doesn't apply to survivors benefits). This could be on the low side since you say you expect a nominal full benefit of $1300 a month at 62. But I have to say, I'm just a bystander here. You'll have to run the numbers for a variety of possible situations to see what might work best for you.

I cannot seem to find any discussions about the impact of taishokukin on WEP calculations. Would it be considered a pension plan relative to WEP? I received a lump sum payment when I left my Japan based company. I am expecting some impact on WEP from the Kokumin Nenkin and Kosei Nenkin because I only have 23 years of substantial earnings for SS.

[ClearAsMud]

WEP, when it applies, applies to pensions. Taishokukin is a lump-sum payment and not a pension, even though in Japan it receives favorable tax treatment as 退職所得. As far as I can gather (caution: amateur at work), therefore, taishokukin simply counts as earned income and is an IRS matter rather than an SSA matter.

The disadvantage with taishokukin is that unless you have foreign tax credits being carried forward -- or unless your salary and taishokukin combined fall below the FEIE -- it is likely to increase your regular American tax liability in the year you receive it because you will only be able to claim a credit for the (greatly reduced) Japanese tax you pay on it.

[dcon]

Thanks for your reply. That makes sense. My thought after reading your reply was that it was just part of my severance package (and it was). I ended up with a lot of foreign tax credits to carry forward and no foreign income to apply them to. I just searched for WEP and severance and found the following in their Operations Manual (POMS).



RS 01401.180 Dismissal, Severance or Termination Pay

A. DEFINITION

Dismissal, severance or termination pay are payments by an employer to an employee for involuntary separation of the employee from the service of the employer.

EXAMPLE: Employee's employment is terminated because of economic conditions which cause the shutdown of a plant or other similar actions by the employer.

B. POLICY

These payments are wages because the pay is usually based on past service and constitutes additional compensation flowing from the employment relationship.

[TedI]

I am in the similar situation and did some digging. I have worked both in Japan and U.S. and eligibale for retirement benefit from both. I have already started receving Japanese "kosei-nenkin" and early next year apply for U.S. Social Security as I will be reaching full retirement age(66y and 4m).
In my case, I believe there is no way to avoid or reduce WEP. There are some exceptions that reduce WEP deduction such as not having more than 40 credits or having more than 30 years of "substantial eanings" or receiving only Japan`s "kokumin-nenkin". Nonne of these apply to my case.
If you receive (or going to receive) "kosei-nenkin", it will trigger WEP. As I understand, "kokumin-nenkin" is a residence-based pension (not a work-based pension) and does not (should not) trigger WEP but "kosei-nenkin" does.
When you appy for U.S. Social Security through U.S. Embassy, you will be asked to submit the statement from Japan Pension Service. It shows the amount you receive under "kokumin-nenkin"(also called kiso-nenkin) and "kosei-nenkin" separately. When you have received the notice from SSA regarding the benefit you are going to receive, you need to check to see if they have used only "kosei-nenkin" to calculate WEP. There are some incidents SSA has used wrong number. Also some statements you receive from Japan Pension Service show amount you receive every two months. If you use this statement, make sure it is for two-months. You have only 65 days to file a clam for correction.
FYI, if you participate in "kosei-nenkin", you automatically paticipate in "kokumin-nenkin". It is what is referred as the 1st Floor of complex Japan`s pension sytem and mondatory for any one over 20 years old. It pays "rorei-kiso-nenkin (old-age basic pension)" when you reach certain age.
TedI