The interplay of retirement benefits across borders can be complex. For individuals who have lived or worked in both Canada and the U.S., the rules governing pensions, social security and tax treatment require careful navigation. A key piece of this landscape is the Windfall Elimination Provision (WEP) in the U.S. Social Security system. For Canadians (or dual-Canada/U.S. residents) with a mix of U.S. and Canadian pensions, understanding WEP—and the recent changes to it—is critical. This article walks through what the WEP is, how the Canada Pension Plan (CPP) can affect U.S. Social Security benefits, the role of the United States–Canada Totalization Agreement, and how you can plan your retirement income with cross-border exposure.
What is the Windfall Elimination Provision (WEP)?
The WEP is a provision of U.S. law that modifies how the benefit from the U.S. Social Security Retirement Insurance Benefits (SSRI) is calculated if you also receive a pension from employment for which U.S. Social Security taxes were not paid (i.e., non-covered employment).
Why was it introduced?
When U.S. Social Security calculates a benefit, it uses a progressive formula that replaces a higher percentage of past earnings for lower lifetime earners. The concern in the early 1980s was that workers who had a mix of covered and non-covered employment (such as foreign pensions or public employer pensions not subject to U.S. Social Security taxes) would effectively receive the higher replacement percentage even though their “average indexed monthly earnings” (AIME) didn’t include all of their income history or pension benefits, resulting in what Congress deemed a “windfall.”
How WEP worked (historically)
If you fell under the WEP rules, then your U.S. Social Security benefit would be reduced. The reduction formula depended on how many years of “substantial earnings” you had under Social Security, and whether you had a pension from non-covered work. For example, if you had fewer than 30 years of “substantial earnings” you could see a bigger reduction.
The WEP reduction could be calculated in two ways and the lesser reduction would apply:
- A modified first bend point (the part of the formula in Social Security that replaces a higher proportion of low earnings) was reduced — meaning the replacement % started lower than the usual 90% for the lowest band.
- Or: half of the non-covered pension amount (converted to U.S. dollars) could be used as the reduction.
What this meant for cross-border retirees
For Canadians who worked part time in the U.S., earned U.S. Social Security credits, and receive a pension from the CPP or another Canadian employer pension (which is non-covered for U.S. Social Security purposes), the WEP created an unexpected bite out of the U.S. Social Security benefit. The result? Lower U.S. Social Security benefit amounts than many anticipated.
In other words: you might have contributed (via U.S. payroll taxes) to Social Security, and earned CPP credits in Canada, and yet your U.S. benefit was reduced because your Canadian pension was deemed “non-covered” under U.S. Social Security — despite the fact you’d made legitimate retirement contributions on both sides of the border.
How CPP affects your Social Security payments
When you consider retirement planning across Canada and the U.S., the interaction between CPP (and in Québec, QPP) and U.S. Social Security payments becomes a key variable.
Overview of CPP and U.S. Social Security
The CPP is the federally-mandated Canadian pension plan into which most workers and employers pay contributions. It provides retirement pensions, disability pensions and survivor benefits for residents/workers in Canada. On the U.S. side, Social Security provides retirement benefits (based on U.S. covered work), disability and survivor benefits.
Why CPP (or a Canadian pension) can trigger WEP concerns
Because CPP benefits are non-covered in terms of U.S. Social Security law (i.e., your Canadian contributions didn’t go into the U.S. Social Security Trust Fund), the receipt of a CPP pension (or other Canadian employer pension) could have triggered the WEP reduction on your U.S. Social Security benefit if you also qualified for U.S. benefits under Social Security.
Simply put:
- You worked in the U.S., pay into Social Security → you accrue credits for U.S. Social Security eligibility.
- You also worked in Canada (or are a Canadian resident) and receive CPP at retirement.
- Historically, because your CPP pension is non-covered for U.S. Social Security purposes, the WEP would apply, reducing your U.S. benefit.
The effect on claiming strategies
With WEP in place (pre-repeal), it meant that many Canadians with U.S. work history had to factor in potential U.S. benefit reductions when deciding when to claim U.S. Social Security, when to start CPP, and how to structure their retirement income. For instance: delaying CPP or delaying claiming U.S. Social Security might have made more sense if the WEP reduction was going to be large. The coordination of benefits, tax planning and retirement income planning became more complex.
Exceptions under the Totalization Agreement
The Canada-U.S. Totalization Agreement (formally, the “United States–Canada Totalization Agreement”) helps cross-border workers by allowing the combining of U.S. Social Security credits and Canadian CPP/QPP contributions for eligibility purposes — meaning you may gain eligibility where you might otherwise not have.
How it works
If you worked in the U.S. and Canada, you may find that neither country alone gives you sufficient credits to qualify for benefits, but combined via the Totalization Agreement you meet the eligibility threshold in one or both countries.
Limitations and interaction with WEP
While the Totalization Agreement does help with eligibility, it doesn’t directly address the WEP reduction issue. Historically, even if a cross-border worker used the Totalization Agreement to qualify for U.S. Social Security, the fact that they received a CPP pension meant they could still be subject to WEP.
However — and this is critical — the recent legislative developments in the U.S. have changed the paradigm. As of January 2025, the WEP (and the related Government Pension Offset (GPO)) have been repealed under the Social Security Fairness Act.
Key takeaway
If you are a Canadian-U.S. cross-border retiree (or will be), the Totalization Agreement remains an important tool for ensuring eligibility. But with the WEP repeal, the penalty aspect tied to non-covered pensions may no longer be a barrier—or at least will no longer reduce your U.S. benefit in the way it once did. That shifts the focus of your Canada U.S. financial planning into new terrain.
Retirement income planning for dual-country retirees
Given the evolving rules around the WEP and cross-border pensions, fellow retirees or near-retirees with Canadian-U.S. exposure should revisit their retirement income plan. Here are the major considerations and action-steps.
- Review your U.S. Social Security eligibility and benefit estimate
- Do you have the 40 quarters (10 years) of U.S. Social Security work credits required for a U.S. retirement benefit?
- What is your estimated Primary Insurance Amount (PIA) under U.S. law without the WEP reduction? Since the WEP has been repealed, your estimated benefit may increase compared with prior projections.
- If you are already receiving U.S. benefits and were subject to the WEP reduction, check whether the retroactive adjustment has been applied (the U.S. Social Security Administration confirms previous WEP/GPO reductions for non-covered pensions will be reversed for months after December 2023).
- Re-evaluate the timing of CPP and U.S. benefits
With the WEP penalty removed, the dynamic between when to start CPP and when to claim U.S. Social Security may shift. Previously, delaying U.S. Social Security might have mitigated WEP reductions; now the calculus may be simpler: you can choose based more cleanly on health, longevity, tax implications and income needs.
- Tax and residency considerations
- If you retire in Canada but receive U.S. Social Security, be aware of tax treaties and how social security benefits are treated under Canadian tax law (and U.S. tax law for U.S. residents).
- The Canadian-U.S. tax treaty may provide relief or special rules on pensions and social security.
- Your province of residence, and whether you reside part time in the U.S., can affect health care, pension indexing, and other income tax issues.
- Coordinate with employer pensions and other income
If you have a Canadian employer pension plan, or a private pension from Canada, or other U.S. qualified retirement plans (401(k), IRA, etc.), you will want to integrate how each of these income streams will be taxed, how they fit into your cash-flow needs, and how they will interact with CPP and U.S. Social Security. The removal of WEP simplifies one variable but the broader Canada U.S. financial planning environment remains complex.
- Expect changes and monitor law enforcement
While the WEP repeal is a major win for cross-border workers between Canada and the U.S., no one should assume the retirement income rules will remain static forever. The U.S. Social Security system’s long-term solvency is still under pressure, and further reforms may emerge.
Conclusion
For Canadians who have also worked in the U.S., or for U.S. workers who lived in Canada, the elimination of the Windfall Elimination Provision fundamentally changes one piece of your retirement planning puzzle. What used to be a penalty on your U.S. Social Security benefit due to a non-covered Canadian pension is now off the table. That means clearer planning, potentially higher U.S. Social Security benefits, and a need to revisit assumptions about benefit timing, pension coordination and tax residency.
What this means to you
If you are a cross-border worker or retiree with exposure to both Canada and the U.S., you should update your Canada U.S. financial planning strategy to reflect the following:
- The WEP reduction no longer applies after December 2023 for months payable, and retroactive adjustments are underway.
- Your U.S. Social Security benefit estimate may now be higher—make sure you get updated statements from the U.S. Social Security Administration (SSA).
- The timing of CPP vs. U.S. benefit claiming should be revisited: you may now choose based largely on your personal retirement income needs, health and tax situation rather than being forced into a strategy that sought to offset WEP.
- Tax and residency planning remains important: even if the WEP is gone, you still need to coordinate Canadian vs. U.S. tax rules, pension treatment, and benefit-claim decisions.
- Work with a cross-border financial or tax advisor who understands Canada U.S. financial planning, to integrate your CPP, Canadian pension(s), U.S. Social Security, U.S. retirement accounts and Canadian registered plans into one coherent retirement income strategy.
In short: the removal of WEP is a compelling reason to re-open your retirement income plan, especially if you assumed a “haircut” on U.S. Social Security due to CPP or non-covered Canadian pensions. With that penalty removed, your cross-border retirement strategy may be simpler and more favorable than you thought — but only if you proactively update and coordinate your plan.
