Imagine opening a letter from the Social Security Administration (SSA) only to find that not only were you allegedly overpaid in benefits, but now you’re being asked to repay tens of thousands of dollars — often with little explanation.
This scenario is becoming increasingly common. SSA has recently increased efforts to reconcile past payment errors, and unfortunately, some recipients are being caught off guard by significant repayment demands — sometimes for benefits they’ve been receiving for years.
Why Overpayments Happen
SSA overpayments can occur for a variety of reasons, often involving complex or misunderstood rules.
A common example involves spousal benefits. For example, an individual we’ll call Debra is shocked to receive a $59,000 repayment notice. She had been receiving spousal benefits for several years without issue. However, because her husband suspended his own benefit in January 2019 — a change that, under the Bipartisan Budget Act of 2015, made her ineligible to continue receiving spousal benefits — SSA eventually flagged the payments as erroneous and demanded repayment.
This law was designed to eliminate the popular “file-and-suspend” strategy, and under the revised rules, spousal benefits cannot be paid if the worker suspended their own benefit after April 29, 2016. Although SSA systems should have accounted for this, errors in administration led to some beneficiaries being overpaid — and only now is SSA catching up and sending notices.
In another instance, a retired individual receiving a pension from non-covered employment (i.e., a job that did not pay into Social Security) applied for divorced-spouse benefits. These benefits were incorrectly paid without the standard reduction required by the Government Pension Offset (GPO). When SSA later discovered the mistake, it demanded a repayment of $50,000 — despite the individual we’ll call Bob stating they had disclosed their pension when applying.
Overpayments and the Earnings Test
Overpayments also frequently arise in cases involving the earnings test. Individuals who begin collecting benefits before full retirement age (FRA) and continue working must report expected earnings. If these estimates are low — or omitted entirely — and the individual earns more than the annual limit, SSA may overpay and then retroactively adjust benefits once actual income is reported by the employer. This results in repayment demands that can surprise early retirees who assumed their benefits were correctly calculated.
What To Do If You Receive a Notice of Overpayment
A Notice of Overpayment typically states the amount owed and provides instructions for repayment — often requesting the entire amount be paid within 30 days. Unfortunately, these notices sometimes lack specific details on why the overpayment occurred, leaving recipients confused and concerned.
Fortunately, there are several steps individuals can take:
1. Request a Reconsideration
If the overpayment appears to be incorrect — either because the recipient believes they were eligible for the benefits or the amount is inaccurate — a Request for Reconsideration can be filed. This is the first step in the appeals process and involves asking SSA to review the case.
To initiate this, beneficiaries can file Form SSA-561-U2 or submit an appeal online. While the deadline is 60 days from the date the notice is received, it is recommended to file within 30 days to prevent automatic withholding of current benefits.
During the reconsideration, a different SSA employee will review the file and any supporting documentation. If the decision remains unchanged, the recipient may further appeal by requesting a hearing before an Administrative Law Judge, where testimony and legal representation are allowed.
2. Apply for a Waiver
In situations where the overpayment did occur but was not the recipient’s fault — and repayment would cause financial hardship — a waiver may be requested.
To do this, recipients should submit Form SSA-632-BK. The form asks for a detailed explanation of the overpayment circumstances and requires financial information to assess the individual’s ability to repay.
SSA typically considers an overpayment “not the recipient’s fault” if:
- The individual didn’t know they had to report certain information.
- They did report updated information, but SSA didn’t adjust benefits accordingly.
- They reasonably believed the benefit amount was correct.
If SSA agrees the recipient was not at fault, it then evaluates whether repayment would be burdensome. Hardship might include being on public assistance (like SSI), having limited income, or demonstrating that repayment would cause an inability to meet basic living expenses. Additionally, SSA may waive repayment if recovery would be “against equity and good conscience” — such as cases where financial decisions were made based on incorrect information provided by SSA.
3. Negotiate an Installment Plan or Compromise
If the overpayment is valid and repayment is possible — but difficult all at once — SSA offers repayment options:
- Installment Plans: SSA usually accepts monthly payments that will repay the full amount within 36 months with minimal documentation. Plans extending beyond 36 months may require proof of financial hardship.
- Compromise Offers: SSA may also consider lump-sum offers to settle the debt, typically accepting at least 80% of the total overpayment. Lower offers are evaluated on a case-by-case basis depending on the individual’s circumstances.
How SSA Collects Overpayments
The most common method SSA uses to recover overpayments is by withholding monthly Social Security benefits. In cases where recipients are no longer eligible for a particular benefit (like a spousal add-on), SSA may begin withholding their remaining benefits until the full amount is recovered.
If the recipient is no longer receiving benefits, SSA will request repayment by check or credit card. If no payment is made, SSA may garnish wages, withhold future benefits, or even intercept federal tax refunds through the Treasury Offset Program.
Lessons From Past Cases
Overpayment issues underscore the importance of understanding how claiming strategies interact with SSA rules. For example, in the case of the spousal benefit error mentioned earlier, had the couple known that suspending the husband’s benefit disqualified the wife from receiving spousal benefits, they might have chosen an alternative strategy — such as using a restricted application. In certain cases, where eligibility allows, the spouse could claim their own benefit while the other spouse collects a spousal benefit. This could have significantly reduced or avoided the overpayment.
Financial planning tools like a Spousal Planning Calculator can help model these scenarios and identify the most efficient claiming approach, especially for couples eligible for grandfathered strategies.
While the majority of Social Security benefit payments are accurate and processed without issue, overpayments can and do happen — and often through no fault of the recipient. These notices can be stressful, but it’s important to act quickly and explore available options rather than ignore the issue.
If you or a loved one receives a Notice of Overpayment, consider working with a financial advisor or Social Security expert to understand the situation and determine the best course of action — whether it’s appealing the notice, requesting a waiver, or negotiating a manageable repayment plan.
Understanding your rights and the resources available can help protect your retirement income and prevent unnecessary financial hardship.
Bautis Financial LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.