Regulation around crypto is still evolving, and understanding how these assets can impact your finances — such as Social Security payments — can be tricky to understand.
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The Internal Revenue Service (IRS) has stated that for federal tax purposes, virtual currency is treated as property: “General tax principles applicable to property transactions apply to transactions using virtual currency.”
In turn, this means that capital gains and losses need to be reported and will generally have a consequence on your taxes.
Now when it comes to Social Security benefits, having crypto can become a bit more complicated.
According to the Social Security Administration (SSA) crypto can be either “earned” or “unearned” for benefit purposes.
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What Is ‘Earned’ Crypto?
There are specific criteria for crypto to be considered earned income for Supplemental Security Income (SSI) purposes, according to the SSA.
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If it’s “paid as remuneration for work when an employee/employer relationship exists (wages).”
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If it’s “paid as a royalty or honorarium that is earned income.”
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If it’s “earned as a result of a valid self-employment activity.”
There are also specific situations in which crypto can be considered earned income. For instance, crypto mining and staking are “considered self-employment when done as a part of a trade or business,” according to the SSA
In addition, the SSA noted that non-fungible tokens (NFTs) creators “may receive royalties which may be earned or unearned income depending on whether the person is engaging in a trade or business.”
What Is ‘Unearned’ Crypto?
Unearned crypto on the other hand, are assets which are “purchased with an individual’s own existing funds” and are not income, “but a conversion of a resource from one form to another.”
“For example, if a recipient uses money from their savings account to purchase Bitcoin, the Bitcoin is not income in the month of purchase, but a resource that has changed its form,” according to the SSA.
What Does It Mean?
As the SSA explains, only what is earned income, your wages, or net income from self-employment is covered by Social Security.
“If money was withheld from your wages for “Social Security” or “FICA,” your wages are covered by Social Security. This means you are paying into the Social Security system that protects you for retirement, disability, survivors, and Medicare benefits,” it explains.
It also matters in another case, in regards to SSI, because the more income, the less your SSI payments might be.
“Additional income can impact Social Security benefit payments only for benefit payments before normal retirement age,” said Mark Luscombe, CPA, attorney and principal analyst at Wolters Kluwer’s Tax and Accounting Division North America. “For those eligible for SSI, additional income can reduce or eliminate eligibility for those payments.”
Indeed, to calculate the SSI payments, the SSA subtracts any income that is not gross income — the rest of the amount is the so-called “countable income.” It then deducts this countable income from the SSI federal benefit rate.
“If your countable income is over the allowable limit, you cannot receive SSI benefits,” according to the SSA.
For 2024, the countable income for SSI benefits is $2,000 in assets for individuals and $3,000 for couples, with some exceptions, according to the Center on Budget and Policy Priorities.
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This article originally appeared on GOBankingRates.com: Can Your Crypto Investments Impact Social Security Payments? 3 Things To Consider
