Social Security's Overpayment Rule Is Changing In March

Typically, if you receive a larger sum of money than expected in exchange for services provided or the sale of an item, you'd be elated with the windfall. However, if Americans' Social Security payments are larger than they're entitled to, rest assured that the Social Security Administration (SSA) is going to want that money returned. And beginning March 27, 2025, the agency will be much more aggressive in collecting the surplus funds. Specifically, it'll begin withholding 100% from future payments until the overpayment amount is returned. That's up from a 10% default withholding rate for overpayments that's been in place for about one year. 

There are several reasons why Social Security recipients may receive a supersized payment to begin with. It's possible that beneficiaries didn't alert the SSA to life changes that might affect the amount of benefits received. According to the SSA, "This includes things like getting a new job, getting married, and moving to a new home." And of course, the potential exists for good ol' fashioned administrative errors that aren't the fault of the recipient, like erroneous data entry.

During the fiscal year 2022, the SSA overpaid about $6.5 billion in benefits to what is calls its OASDI program. That's short for Old-Age, Survivors, and Disability Insurance. A further $4.6 billion in overpayments occurred within the SSI program during 2022. Though perhaps not what's considered traditional Social Security, SSI makes assistance payments to the handicapped and blind, among others.

While the above overpayments liabilities are from only the 2022 fiscal year, the running total of uncollected overpayments is significantly higher. At the end of 2023, the SSA was facing $23 billion worth of overpayments yet to be collected. In the distant past, the agency clawed back these overpayments at a rate of 100% if beneficiaries failed to respond to an overpayment notice. However, in March 2024, then-commissioner of Social Security Martin O'Malley — since resigned — instituted what he considered a much more fair and reasonable default withholding rate of 10%. 

For instance, at a default withholding rate of 10%, a benefits recipient could repay a $3,000 overpayment by having $300 deducted from future benefit checks over a period of 10 months until the overpayment is satisfied. But starting on March 27, 2025, the default withholding rate will revert back to its former level of 100%.

That means that a $3,000 overpayment will be clawed back from recipients as soon as possible, even if that means enveloping an entire future social security check(s). By returning to the former 100% default withholding rate, the SSA expects to recover approximately $7 billion in overpayments over the next 10 years. 

Although the upcoming default withholding rate of 100% for social security overpayment may seem harsh at first, it was indeed the de facto policy for many years. In a recent statement, the acting Social Security director Lee Dudek states, "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." As a reminder, Dudek is a short-term acting director following the resignation of prior SSA director Michelle King over a conflict with DOGE, which is also shuttering some Social Security offices. 

The statement goes on to explain that affected individuals "have the right to appeal the overpayment decision or the amount. They can ask Social Security to waive collection of the overpayment, if they believe it was not their fault and can't afford to pay it back." Additionally, recipients who can't afford the 100% withholding rate — even if the overpayment is the recipient's fault — can contact the SSA by phone or in-person to explain their situation and request a more gradual repayment plan. No repayment is required while such an appeal or waiver is being considered.

To avoid a shock to your finances caused by an unexpected influx of money, followed by an income drought, it's especially important now to scrutinize your Social Security checks or electronic deposits to verify that the payment is as-expected and contact SSA if it's not. It's also worth noting that overpayments of SSI disability benefits will maintain a default withholding rate of just 10%.