Social Security moves to dial up clawback rates to 100%

The Social Security Administration is set to reinstate its previous policy of reclaiming overpayments at a full 100 percent withholding rate, a sharp increase from the 10 percent limit that had been in place since early 2024.

The agency announced the change Friday, citing a need for stricter financial oversight of the Social Security trust funds.

Beginning March 27, beneficiaries who receive new overpayment notices will have their entire monthly Social Security check withheld until the debt is repaid. The SSA estimates the policy change will result in approximately $7 billion in recovered overpayments over the next decade.

“We have the significant responsibility to be good stewards of the trust funds for the American people,” Acting Commissioner Lee Dudek said in the statement Friday. “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.”

The policy shift follows a period of increased scrutiny over Social Security’s payment accuracy. In a July report, the SSA’s Office of the Inspector General said that between fiscal years 2015 and 2022, there were about $71.8 billion in benefits – less than 1 percent of the $8.6 trillion paid out – in improper payments. While not all of these were overpayments, most fell into that category.

In another report last month, the OIG said overpayments in the Old-Age, Survivors, and Disability Insurance program, which covers most retirees, added up to roughly $13.5 billion in the four years from 2020 until 2023.

Under a Biden-era policy implemented in March last year by former Commissioner Martin O’Malley, the default repayment rate was reduced from 100 percent to 10 percent of a recipient’s monthly benefit. That change was part of an effort to ease financial hardship for retirees who were asked to repay large sums, often due to administrative errors.

The National Committee to Preserve Social Security and Medicare panned the decision to revert to full withholding. “This action, ostensibly taken to cut costs at SSA, needlessly punishes beneficiaries who receive overpayment notices – usually through no fault of their own. Many overpayments are the result of errors on SSA’s part,” the organization told MarketWatch.

The agency clarified that the new withholding rate applies only to Social Security overpayments assessed after March 27. Those with existing overpayment balances will continue under their current repayment terms. It said the policy change does not affect Supplemental Security Income, where the withholding rate will remain at 10 percent, and those who receive notices have the option to appeal.

Social Security is projected to pay out $1.6 trillion in benefits in 2025. The program’s finances have been a point of debate among policymakers, with discussions focusing on maintaining its solvency and rooting out fraud in the system.

While some officials including President Trump have called for stronger oversight of improper payments, critics argue that repayment policies should take into account the financial well-being of beneficiaries. 

In an interview with MarketWatch, Richard Fiesta, executive director of the Alliance for Retired Americans, called the move back to a 100 percent repayment rate "cruel" and argued it would "cause unnecessary harm [as] some of the most vulnerable Americans may see their monthly benefit reduced to zero until the repayment is satisfied.”

In the SSA's annual report for the fiscal year 2024, Acting Commissioner Carolyn Colvin defended the 10 percent withholding rate as a “common-sense and compassionate approach” that ensured “fair and equitable administration of our programs and provide[s] individuals with the financial stability that Social Security benefits were designed to deliver.”

According to nonprofit organization Legal Aid, beneficiaries will want to review their options carefully if they receive an overpayment notice. Those who wish to appeal an overpayment determination have 60 days from the overpayment notice to file their request. Those who believe the overpayment wasn't their fault and can't afford to repay it may ask for a waiver, while others who rely too much on their benefits may also ask to work out a payment plan.