This Social Security Error Cost One Person $300K — Could It Happen to You?

Senior man is standing in the kitchen of his home with bills in one hand and a cup of tea in the other.
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It might sound like a good problem to have — getting overpaid by Social Security because of some error in calculation — but it can be very costly if you don’t follow the right procedures. As Forbes recently reported, one unlucky woman had to repay more than $300,000 because of a mistake Social Security made.

Social Security overpayments are more common than you might think and can happen for several reasons. Benefits are often overpaid when the agency can’t accurately calculate your benefit amount because its information is wrong or incomplete, according to the Social Security Administration website. This can happen if you don’t share updates with the SSA about life changes such as your ability to work, your living situation, your marital status and your income.

But as Pine Tree Legal Assistance noted in a blog, sometimes overpayments are caused by administrative errors on the part of the SSA, such as a beneficiary not being told about certain reporting requirements.

When the SSA finds out that a beneficiary has been overpaid, it sends “claw-back” bills in the form of overpayment notices, according to Laurence Kotlikoff, a financial writer and Economics professor at Boston University. This might happen long after the mistake happened.

“In virtually every case, the demands for repayment are due to Social Security’s having miscalculated a beneficiary’s correct benefit amount years or even decades in the past,” Kotlikoff wrote in a column for Forbes. “But Social Security’s mistakes are your mistakes. If you are desperately poor, they may choose to let you keep their overpayments. Otherwise, tough luck.”

Are You Retirement Ready?

He cited one disabled woman who owed $300,000 because of an overpayment and was deemed by a Social Security’s administrative law judge to be “too well off to qualify for relief.”

If you get a letter from the SSA saying that you got more money than you should have, you are required to repay it within 30 days. The SSA will wait at least 35 days (including five mail days) from the date of the overpayment notice before it starts the collection process. If you submit a request for waiver or reconsideration before 30 days has passed, the SSA will not begin collection of the overpayment until a decision is made on your request. 

Pine Tree Legal Assistance recommends first reading the overpayment notice carefully to ensure that the information, amounts and dates are correct. After that, here are some of your choices:

  • Ask for reconsideration. This is an appeal showing that you want the SSA to look at your case again. You should ask for a reconsideration if you think the amount of the overpayment is wrong or that the reason SSA gave for the overpayment is wrong.
  • Ask for a waiver. If you agree that you were overpaid, you can still ask the SSA to waive it so you don’t have to pay it back. Ask for a waiver if you think that the overpayment was not your fault and/or you can’t afford to pay the money back.
  • Ask for a payment arrangement. You can use this option if you think the overpayment was your fault and you can afford to pay it back. Payment arrangements allow you to pay the money back a little at a time. The amount would be based on how much of your income is needed for basic necessities.

One thing you don’t want to do is put the notice aside after receiving it. It’s important to act quickly because if you ignore or forget about the notice, the SSA will start taking money out of your future Social Security payments, as GOBankingRates recently reported. Again, you will need to reply within 30 days of the date of the notice — not the date you receive it.

If you have questions about the notice, you can call the SSA at 855-807-8807 (TTY 800-325-0778). If your overpayment letter includes online payment instructions and a Remittance ID, you can also repay online at pay.gov.

Are You Retirement Ready?

If you’d like to request to repay in smaller monthly payments, fill out the Request for Change in Overpayment Recovery Rate (Form SSA-634) and fax or mail the form to your local Social Security office. If you can’t afford to pay the money and believe the error wasn’t your fault or is unfair for some other reason, visit the SSA’s waive repayment page.

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