Regulation regarding cryptocurrencies is still evolving, and it can be difficult to understand how these assets will affect your financials, such as Social Security benefits.
Check it out: In Five Years, These 2 Stocks Will Be Worth More Than Apple
Read next: 5 Unusual Ways to Make Money (That Actually Work)
The Internal Revenue Service (IRS) has stated that cryptocurrencies are treated as property for federal tax purposes: “The general tax principles that apply to property transactions also apply to transactions using cryptocurrencies.”
This means that you have to report capital gains and losses, which usually has tax implications.
Now, when it comes to Social Security benefits, holding cryptocurrency can get a bit complicated.
According to the Social Security Administration (SSA), cryptocurrencies can be either “earned” or “non-earned” for benefit purposes.
Wealthy people know the best financial secrets. Learn how to replicate them.
What is the “earned” cryptocurrency?
According to the SSA, there are certain criteria for cryptocurrency to be considered earned income for purposes of Supplemental Social Security Income (SSI).
-
“Wages paid as remuneration for labor when an employment relationship exists.”
-
“If it is paid as a royalty or honorarium, it is earned income.”
-
If it is “obtained as a result of valid self-employment activities.”
There are also certain circumstances in which cryptocurrency is considered earned income. For example, cryptocurrency mining or staking “is considered self-employment if conducted as part of a trade or business,” according to the SSA.
Additionally, the SSA noted that creators of non-fungible tokens (NFTs) “may receive royalties that represent earned or unearned income, depending on whether the person is engaged in a trade or business.”
What is “Unearned” Cryptocurrency?
Unearned cryptocurrency, on the other hand, is an asset “purchased with an individual’s existing funds” and is not income, but rather “the conversion of resources from one form to another.”
According to the SSA, “For example, if a recipient uses money from a savings account to purchase Bitcoin, the Bitcoin is not income in the month of purchase, but is a transformed resource.”
What does that mean?
As the SSA explains, only net income from earned income, wages, or self-employment is covered by Social Security.
“If money is withheld from your paycheck for Social Security or FICA, your paycheck is covered by Social Security. That means you pay into the Social Security system that protects you for retirement, disability, survivor and Medicare benefits,” it explains.
This is also important in other cases when it comes to SSI, because the more you earn, the less SSI you may have to pay.
“Additional income only affects Social Security benefits if benefits are paid before normal retirement age,” said Mark Luscombe, a CPA, attorney and principal analyst in Wolters Kluwer’s North American tax and accounting practice. “For those eligible for SSI, additional income could reduce or void their benefit entitlement.”
In fact, to calculate your SSI payment, the SSA subtracts all income that is not gross income. The remaining amount is what they call “countable income.” This countable income is then subtracted from your SSI federal benefit rate.
According to the SSA, “If your countable income exceeds the allowable limits, you cannot receive SSI benefits.”
According to the Center on Budget and Policy Priorities, the income threshold for SSI benefits in 2024, with some exceptions, is $2,000 in assets for individuals and $3,000 in assets for couples.
More from GOBankingRates
This article originally appeared on GOBankingRates.com: Will Crypto Investing Affect Your Social Security Benefits? 3 Things to Consider
