It sure was nice getting that stimulus check in the mail (or deposited directly into your bank account)! Hopefully, your clients put the money to good use. But
after getting that much money unexpectedly, retirees might be wondering how it could impact their taxes for the year—especially the tax on Social Security
benefits. The short answer: Stimulus checks are really just advanced payments of a new “recovery rebate” tax credit for the 2020 tax year. As such,
they aren’t included in taxable income.
The federal government can tax up to 85% of your Social Security benefits. To figure the tax on your benefits, you first need to determine your “provisional
income.” This is equal to the total of (1) 50% of your Social Security benefits, (2) your tax-exempt interest, and (3) your adjusted gross income (not
including the student loan interest deduction or the tuition and fees deduction). For singles, none of your Social Security benefits are taxed if provisional
income is less than $25,000. For married couples filing a join return, your Social Security benefits are safe if your provisional income is less than $32,000.
Any additional taxable income will increase your adjusted gross income, which then increases your provisional income for Social Security tax purposes. If your
provisional income goes up enough to move you from the 0% to the 50% bracket, or from the 50% to the 85% bracket, then you’re looking at a tax increase. So,
the key question is whether your stimulus check will boost your taxable income.
Stimulus checks are really just advanced payments of a new “recovery rebate” tax credit for the 2020 tax year. As such, they aren’t included
in taxable income. So, your stimulus check won’t increase your AGI, or your provisional income. And if your provisional income doesn’t go up, the tax
on your Social Security benefits won’t either.
Most Social Security recipients who are eligible for a stimulus check should have received payment by now. If you filed a 2018 or 2019 tax return, the IRS will
get the information it needs to calculate and process your payment from your most recent return. Otherwise, the IRS will get the necessary information from the
Social Security Administration. To check on the status of your payment, go to the IRS's “Get My Payment” portal. If you’re slated to get a paper
check, you can provide your bank account information to get a direct deposit, which is a much faster form of payment.
You can find the full article at Kiplinger.com