Will Your Stimulus Check Increase Your Tax on Social Security Benefits?

The answer to this question comes down to whether your stimulus check increases your "provisional income."

picture of tax form and Social Security card
(Image credit: Getty Images)

We've had two rounds of stimulus checks so far – and another round is right around the corner. It's nice getting unexpected money, and for some people it's a life saver. Whatever your situation, we hope you're able to put the money to good use.

But many seniors are wondering how these stimulus checks are going to impact their taxes – especially the tax on Social Security benefits. April 15 will be here before you know it, so you'll need to file your 2020 tax return soon if you haven't done so already. You sure don't want an unpleasant surprise when you do file your return. So, if you're a retiree, hopefully we can put your mind at ease about stimulus checks and taxes on your Social Security benefits.

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How Social Security Benefits Are Taxed

Let's start by explaining how Uncle Sam taxes Social Security benefits. The federal government can tax up to 85% of your Social Security benefits. To figure the tax on your benefits, you first need to determine your "provisional income." This is equal to the total of (1) 50% of your Social Security benefits, (2) your tax-exempt interest, and (3) your adjusted gross income (not including the student loan interest deduction or the tuition and fees deduction).

If you're single, none of your Social Security benefits are taxed if your provisional income is less than $25,000. If your provisional income is between $25,000 and $34,000, then up to 50% of your Social Security benefits may be taxable. If your provisional income is more than $34,000, then up to 85% of your benefits may be taxed.

For married couples filing a joint return, your Social Security benefits are safe if your provisional income is less than $32,000. The 50% rate applies if your provisional income is between $32,000 and $44,000. If your provisional income exceeds $44,000, up to 85% of your benefits may be taxable.

Stimulus Check's Impact

Any additional taxable income will increase your adjusted gross income, which then increases your provisional income for Social Security tax purposes. If your provisional income goes up enough to move you from the 0% to the 50% bracket, or from the 50% to the 85% bracket, then you're looking at a tax increase. So, the key question is whether your stimulus checks boost your taxable income.

Stimulus checks are really just advanced payments of a new Recovery Rebate tax credit for the 2020 tax year. As such, they aren't included in taxable income. So, your stimulus check won't increase your AGI, or your provisional income. And if your provisional income doesn't go up, the tax on your Social Security benefits won't either.

What About State Taxes

Unless you live in a state with no income tax, you'll have to file a state income tax return, too. The good news is that your stimulus payments won't raise your state taxes, either. Most states don't tax Social Security benefits. So, there's no reason to worry if you live in one of those states.

You're also safe if you live in one of the handful of states that do tax Social Security payments (either full or partially). That's because the calculation of your state tax liability is going to start with either your federal AGI or federal taxable income. We already established that stimulus payments won't increase your federal AGI. And, if your federal AGI isn't higher because of the stimulus checks you receive, then your federal taxable income won't be higher, either. Since your stimulus payments aren't being carried over as income on your state income tax return, you won't end up paying state tax on that money.

What if You Didn't Get a Stimulus Check?

If you're eligible to receive a first- or second-round stimulus check, but you didn't get it (or it wasn't for the full amount), you're not necessarily out of luck. You may qualify for the Recovery Rebate credit on your 2020 tax return for the stimulus money you should have received.

You can claim the Recovery Rebate credit on Line 30 of your 2020 Form 1040 or Form 1040-SR. There will be a worksheet you can use to calculate the amount of your credit, if any, in the instructions for those forms.

To get any tax refund as quickly as possible, file your tax return electronically and sign up to have your refund directly deposited into your bank account. Once the IRS has your bank information, it can send you any future stimulus payments by direct deposit, too.

Rocky Mengle

Rocky Mengle was a Senior Tax Editor for Kiplinger from October 2018 to January 2023 with more than 20 years of experience covering federal and state tax developments. Before coming to Kiplinger, Rocky worked for Wolters Kluwer Tax & Accounting, and Kleinrock Publishing, where he provided breaking news and guidance for CPAs, tax attorneys, and other tax professionals. He has also been quoted as an expert by USA Today, Forbes, U.S. News & World Report, Reuters, Accounting Today, and other media outlets. Rocky holds a law degree from the University of Connecticut and a B.A. in History from Salisbury University.