It can be quite a surprise to see an unexpected deposit from the Social Security Administration (SSA) in your bank account. If you’ve heard that some retirees are receiving extra payments, you’re likely curious about why it’s happening and if it could apply to you. This guide will clearly explain the legitimate reasons for these adjustments.
The most common reason for a “sudden extra payment” is that the Social Security Administration has identified and corrected an error that resulted in you being underpaid. The SSA manages benefits for over 65 million people, and while their system is highly accurate, mistakes can occasionally happen. When an error is found, the SSA is required by law to pay you the money you were originally owed.
This payment often arrives as a lump-sum retroactive payment, also known as back pay. This single, larger-than-usual deposit covers all the months or even years you were receiving a lower benefit than you were entitled to.
Common causes for underpayment errors include:
If the SSA discovers such an error, they will typically notify you by mail before sending the payment. This letter will explain the reason for the adjustment and the amount of back pay you will receive.
Another key reason for a payment adjustment is the SSA’s automatic annual review process. If you continue to work after you start receiving Social Security retirement benefits, your earnings can potentially increase your monthly payment.
Here’s how it works: Each year, the SSA reviews the earnings records of all beneficiaries who worked. If your most recent year of earnings is one of your 35 highest-earning years (adjusted for inflation), the SSA will automatically recalculate your benefit amount to include that higher-earning year.
This recalculation results in a permanent increase to your monthly benefit. Furthermore, you will receive a small amount of back pay to cover the difference for the months of that year before the adjustment was made. For example, if the recalculation based on your 2023 earnings is processed in late 2024, you’ll receive a retroactive payment for the increase you were due from January 2024 onward.
Who qualifies for this? Any Social Security recipient who continues to work and earn income after starting their benefits. The SSA performs this review automatically, so you do not need to apply for it.
While not a surprise check in the same way as back pay, the impact of Delayed Retirement Credits (DRCs) can lead to a first payment that feels like “extra” money. If you wait to claim your Social Security benefits past your Full Retirement Age (FRA), your benefit amount permanently increases.
For every month you delay past your FRA, your benefit increases by a certain percentage, up until you reach age 70. This can result in an increase of up to 8% per year. For someone whose FRA is 67, waiting until age 70 to claim means their monthly benefit will be 24% higher than it would have been at their FRA, for the rest of their life. For retirees who were not fully aware of the significant impact of these credits, their first monthly payment can be a very pleasant surprise.
Certain life events can trigger an adjustment in your Social Security benefits, sometimes resulting in a higher payment.
It’s always wise to be proactive about your Social Security benefits. The best way to do this is to take control of your information.
my Social Security Account: The single most important step you can take is to create a personal account on the official SSA website at SSA.gov. This is a free and secure service that allows you to view your complete earnings record, get a personalized estimate of your future benefits, and see your benefit verification letter.How can I tell if an extra payment is legitimate?
A legitimate payment will be preceded by an official letter from the Social Security Administration explaining the reason for the adjustment. You can also verify any changes by logging into your secure my Social Security account on SSA.gov or by calling the SSA’s official, publicly listed phone number.
Will I have to pay taxes on a lump-sum back payment? Yes, Social Security benefits, including retroactive lump-sum payments, may be subject to federal income tax depending on your total income. The SSA will send you Form SSA-1099, which shows the total benefits you received during the year. You may have the option to attribute the back pay to the years it was supposed to be paid, which could lower your tax liability. It is highly recommended to consult a qualified tax professional for advice.
How common are these payment adjustments? While the SSA system is very accurate, errors are not impossible given the millions of people it serves. The most common adjustments are the automatic annual recalculations for those who continue to work in retirement. Significant underpayment errors requiring large back payments are less common but do happen.