Seniors to Start Receiving $250 Economic-Recovery Payments

But here's the dirty little secret about these one-time payments: Working seniors will have to pay the money back next spring. We explain why and how.

By Kevin McCormally, Editorial Director, Kiplinger.com

May 7, 2009

The federal government made 24 million older Americans $250 richer on May 7 -- a single-day, $6-billion mainline injection into the economy. And about 30 million more seniors will get a similar boost to their personal economies by the end of the month.

The Social Security Administration says that on Thursday issued nearly half of the more than 52 million stimulus payments that are going to Social Security and Supplemental Security Income (SSI) beneficiaries. Identical $250 payments will go to those who receive U.S. Department of Veterans Affairs pensions and Railroad Retirement benefits.

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When Congress created the Making Work Pay tax credit earlier this year (worth $400 for single taxpayers and $800 for couples), lawmakers decided to deliver it via reduced tax withholding from paychecks. That's happening already-for those who have jobs. But Congress didn't want to leave retirees out in the cold. So, it okayed the one-time $250 payments.

If you're eligible, you don't have to do anything to get the money. It is being paid automatically to anyone who received Social Security, SSI, Railroad Retirement and Veterans retirement benefits in November or December 2008, or in January 2009. The payments will be deposited directly into the bank accounts of those who receive monthly benefits electronically; those who get paper checks in the mail (about 20% of all beneficiaries) should watch their mailboxes for an extra check.

When will you get your money?
Social Security is squeamish about specifying a schedule because it doesn't want to alarm folks who might not get the payment when they expect it. But you should get your money within a few days after you receive your regular monthly benefit. If your benefit is normally deposited into your bank account on the second Wednesday of the month, for example, the extra $250 should show up by the following Monday. (Be sure to adjust your balance accordingly.)

Tying payments to the schedule of regular benefit deposits means a husband, for example, might receive his payment weeks before his wife. But be patient. Social Security asks that beneficiaries hold off on any "Where's my money?" calls until at least June 4.

Will you have to give it back?
For most recipients, the $250 stimulus payment is a tax-free bonus from Uncle Sam with no strings attached.

But for hundreds of thousands -- probably millions -- of working seniors, there's a painful catch: They'll effectively have to pay back the money via a bigger tax bill or a smaller tax refund next spring.

Remember, the $250 payment is designed for people who are no longer working and therefore can't benefit from the Making Work Pay tax credit, which equals 6.2% of earned income up to a maximum credit of $400 for singles and $800 for married couples. (A single person who earns about $6,450 this year -- far below the Social Security earnings test that reduces benefits for younger beneficiaries who earn "too much" -- will qualify for the full $400 credit.)

Seniors who are still on the job (or who have returned to the workforce, perhaps to make up for investment losses) are benefiting from the credit through reduced tax withholding on their wages. And come next spring, when 2009 tax returns are filed, they'll face an unpleasant reality: No double dipping is allowed.

Working seniors will have to reduce the Making Work Pay credit they claim on their 2009 returns by the $250 they received. And, since their withholding has been reduced to account for the full value of the credit, the squeeze on the credit will hike the amount of tax they owe or cut their refund by $250.

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