Stimulus Payments Won’t Increase Taxes
Posted by Richard on February 3, 2021
The second stimulus payment is not taxable income and for Social Security recipients, taxes on benefits will also not increase.
The top level tax for Social Security is 85 percent of the total benefit. But not everyone is taxed that much. People with few sources of income other than Social Security aren’t taxed on their benefits and may not even have to file a tax return.
Tax on Social Security is calculated through base income. Base income is equal to the combination of 50 percent of Social Security benefits, tax-exempt interest income (from such things as municipal bonds) and adjusted gross income (not including the student loan interest deduction.)
For single people with a base income of less than $25,000, no Social Security benefits are taxed. If a single person makes from $25,000 to $34,000, then 50 percent of their benefits are taxed.
For married people filing jointly, no benefits are taxed if their base income is $32,000 or less. Joint filers are taxed 50 percent on a base income of $32,000 to $44,000.
The 85 percent rate comes in if a single filer is more than $34,000 or a joint filer is more than $44,000.
Usually, any additional taxable income increases the adjusted gross income and that increases the base income. So with enough additional income, Social Security beneficiaries may move to a higher tax bracket.
However, since the COVID-19 payments are not taxable income, no part of the base income calculation will rise.