Can your crypto investments impact Social Security payments? 3 things to consider

Regulations around crypto continue to evolve and understanding the impact of these assets on your finances – like Social Security payments – can be difficult to understand.

Check out: in 5 years, these 2 stocks will be more valuable than Apple

Read Next: 5 Unusual Ways to Make Extra Money (That Actually Work)

The Internal Revenue Service (IRS) has stated that for federal tax purposes, virtual currency is treated as property: “The general tax principles applicable to real estate transactions apply to transactions using virtual currency. »

In turn, this means that capital gains and losses must be reported and will generally have an impact on your taxes.

Now, when it comes to Social Security benefits, having cryptocurrencies can get a little more complicated.

According to the Social Security Administration (SSA), crypto can be “earned” or “unearned” for benefit purposes.

Rich people know the best financial secrets. Learn to copy them.

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.

• If it is a “payment in consideration of work where there is an employee/employer (salary) relationship”.

• If it is a “payment in the form of royalties or fees that constitutes earned income”.

• If it is “earned through valid independent activity”.

There are also specific situations in which cryptocurrencies can be considered earned income. For example, crypto mining and staking is “considered self-employment when performed in the course of a trade or business,” according to the SSA.

Additionally, the SSA noted that creators of non-fungible tokens (NFTs) “may receive royalties which may or may not be earned income depending on whether the person is engaged in a trade or business.”

What is “unearned” crypto?

In contrast, unearned cryptocurrencies are assets “purchased with an individual’s existing funds” and do not constitute 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 from the month of purchase, but a resource that has changed form,” according to the SSA.

What does it mean?

As the SSA explains, only income from work, your salary, or net income from self-employment is covered by Social Security.

“If money was withheld from your paycheck for “Social Security” or “FICA,” your paycheck is covered by Social Security. This means you pay into the Social Security system which protects you for retirement, disability, survivors and Medicare benefits,” he explains.

The story continues

Another thing that matters is when it comes to SSI, because the higher your income, the lower your SSI payments can be.

“Additional income may impact Social Security benefit payments only for benefits paid before normal retirement age,” said Mark Luscombe, CPA, attorney and principal analyst in Wolters’ tax and accounting division. Kluwer for North America. “For individuals eligible for SSI, additional income may reduce or eliminate eligibility for these payments.”

Indeed, to calculate SSI payments, the SSA subtracts any income that is not gross income – the remainder of the amount constitutes what is called “countable income.” It then deducts this countable income from the federal SSI benefit rate.

“If your chargeable income exceeds the allowable limit, you are not eligible for 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.

More from GOBankingRates

This article originally appeared on GOBankingRates.com: Can Your Crypto Investments Impact Social Security Payments? 3 things to consider