Everyone loves a free check. Seeing Uncle Sam suddenly drop money into your savings account is likely to stoke your patriotic spirit.
But is there a downside to all that unexpected money? Specifically, if you are a senior, is it possible that the stimulus money could push up your income to the point where you suddenly owe taxes on your Social Security benefits or see those benefits taxed at a higher rate?
Millions of Americans pay no federal income taxes on their Social Security benefits. But millions of others are not so fortunate.
Up to 85% of Social Security benefits can be subject to federal taxes if what is known as your “combined income” is at least $25,000 for singles or $32,000 for married couples filing jointly.
“Combined income” is defined as the sum of:
- Your adjusted gross income
- Any nontaxable interest
- One-half of your Social Security benefits
We explain the term — and other important words — in “9 Social Security Terms Everyone Should Know.”
So, the question remains: Will those stimulus payments push your combined income high enough that Uncle Sam soon will come knocking on your door?
Thankfully, the answer is “no.” Technically, the stimulus payments are not a form of combined income — or any other kind of income.
Instead, they are considered to be advance payments of tax credits. Specifically, the stimulus money is an advance payment of what is known as a recovery rebate credit. So, they have no impact on whether you pay taxes on Social Security.
If you didn’t get a stimulus check from the first or second round of payments and were eligible for one, you can claim the recovery rebate credit when you file your 2020 income tax return, which is due May 17. We detail this process in “5 Changes to Your Federal Tax Return Form in 2021.”
If you have yet to receive a stimulus check from the third and most recent round of payments — which is worth $1,400 per eligible person — don’t worry just yet. It might be en route or might have reached your bank account so recently that you have yet to realize it’s there.
The IRS has yet to finish sending out the latest round of payments and has been slower in sending them to people who receive federal benefits like Social Security but do not file a tax return.
So, check your bank account to confirm you didn’t receive the third payment recently and, if not, use the IRS’ free Get My Payment tool to check the status of your check.
Then, prepare to be patient. The IRS notes in its Q&A about the third stimulus round that it will be issuing these payments “throughout 2021.” And if all else fails, you will be able to claim the recovery rebate credit for your third payment when you file your 2021 taxes next year.
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.
Add a Comment
Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.