It is a mistake to believe that just because you receive payments administered by the Social Security administration, you’re required to file a tax return. Whether or not you’re actually required to file a return is determined by how IRS tax law defines your income. For tax purposes, Supplemental Security Income is a welfare benefit, since it is not earned income and is not funded by Social Security or Medicare tax. As a welfare payment, SSI has a different tax treatment than most other sources of income.
Supplemental Security Income is a federal supplemental income program designed for the elderly, disabled and blind who earn little to no income. The monthly benefit payments are intended to cover essential costs such as food, shelter, utilities and clothing.
Who Must File
The broadest two categories of income under IRS tax law are taxable and nontaxable income. All forms of income differentiate along those lines. If even a portion of your income is taxable, then you may meet the threshold required to file an income tax return. SSI is not taxable, and you are not required to file a return if SSI is your only source of income. Since SSI is not taxable, you will not receive a SSA-1099 in the mail.
Other Sources of Income
Just because you are not required to file a return doesn't mean that it is not in your best interest to do so. If you made federal tax payments during the year but didn’t meet the income filing requirements, you might want to file a return so that you can be refunded your federal payments. If you earned wages during part of the year, you may qualify for a refundable credit, making it in your best interest to file a return. If you do decide to file a return for the tax year, do not include SSI benefits on your return. If your sole source of income was SSI, you cannot file a tax return since you did not earn any taxable income and no federal or state tax deductions were taken from your benefit amount.
Other Social Security Payments
Don't confuse SSI with Social Security benefits. Although SSI is administered by the Social Security Administration, it has a different tax designation than Social Security disability benefits and Social Security retirement benefits. Both Social Security disability and retirement benefits may be taxable.
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