Previously, ignoring overpayment letters may lead to the imposition of a crippling 100% penalty – withholding of your benefits entirely until you repay the debt. Although recent policy adjustments have eased this process, knowing how these overpayments are conducted is still applicable to anyone receiving Social Security benefits. This article discusses the nature of these notices, the character and extent of the problem, and what you should do in case you receive one.
The growing overpayment crisis
The Social Security Administration’s overpayment issue has grown to ridiculous levels. The SSA had $23 billion in outstanding, uncollected overpayments as of October 2023 – money the agency mistakenly paid claimants but was never able to reclaim despite its best efforts. That’s a dramatic increase from the $21.6 billion outstanding and uncollected at the start of fiscal year 2023.
Better still, the SSA issued roughly $11.1 billion worth of new overpayments in fiscal year 2022 alone, an eye-popping 65% more in excess payments than the agency had paid the previous year. The agency habitually produced between $6 billion and $7 billion of new overpayments every year for several years preceding that.
Meeting the frightful overpayment letter
Overpayment occurs when you are paid more by the Social Security Administration than you are owed. When that happens, it is the duty of the SSA, under the law, to inform you by sending you a formal overpayment notice. This notice must include specific information such as:
- Why an overpayment was made
- The exact amount paid in overpayment
- The exact months when overpayments were made
- A specific description of what was paid and what ought to have been paid
- How much your benefits will be reduced by if you are allowed to continue receiving SSI
- Details of your right to ask for a waiver or reconsideration
Letters such as these usually surprise individuals, with repayment of sometimes hundreds of dollars that beneficiaries have already spent in good faith without knowledge they are receiving more than they should.
The 100% penalty – A harsh reality (Until recently)
Until March 2024, one of the worst penalties for failing to act on an overpayment notice was the possibility of a 100% penalty – the SSA could hold back your entire monthly benefit until the overpayment was repaid. For those who depend greatly on Social Security to pay for basic needs such as housing and utilities, this penalty could be economically crippling, possibly resulting in homelessness or inability to pay for food or medication.
Beneficiaries were regularly presented with a choice between impossible: try to pay off large sums they did not have, or lose their entire month’s benefit. The overenthusiastic overpayment recovery unfairly damaged the most vulnerable beneficiaries – the ones with few assets, intellectual disabilities, or trouble navigating bureaucratic systems.
New rules bring some relief
In March 2024, SSA Commissioner Martin O’Malley implemented major reforms to alleviate the hardship on beneficiaries subject to overpayment recovery. The four-step plan is:
- Removal of 100% penalty on non-respondents, with the new default withholding rate being only 10% of benefits
- Transferring the authority to establish fault from claimants to the agency itself
- Leniency to extend the repayment period up to 60 months from existing 36 months, making room for more manageable monthly installments
- Eased request for waiver in case of innocent non-respondents or in case they are unable to repay
These reforms are a welcome improvement in the SSA’s management of overpayment recovery, recognizing the hardship aggressive collection methods can cause.
How to respond if you get an overpayment letter
If you get an overpayment notice, you do have some options:
- Request a reconsideration: If you believe that you were not overpaid or that the amount was incorrect, send Form SSA-561 within 60 days of receiving the notice. You are required to explain the grounds for believing the determination was wrong and to attach any supporting documentation.
- Request a waiver: If you consent to being overpaid but do not believe you are required to pay it back because the overpayment was not an error on your part and you cannot repay, submit Form SSA-632. Waiver applications are not limited by time constraints.
Negotiate repayment terms
Should you consent that you were overpaid but can’t afford their repayment rate, submit Form SSA-634 asking for a more equitable repayment agreement.
During processing of your request, the SSA will suspend recovery attempts, allowing you space to prepare your response.
