Can Your Crypto Investments Impact Social Security Payments? 3 Things To Consider

Regulation around crypto is still evolving, and understanding how these assets can impact your finances — such as Social Security payments — can be tricky to understand.

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

In turn, this means that capital gains and losses need to be reported and will generally have a consequence on your taxes.

Now when it comes to Social Security benefits, having crypto can become a bit more complicated.

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

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’s “paid as remuneration for work when an employee/employer relationship exists (wages).”
• If it’s “paid as a royalty or honorarium that is earned income.”
• If it’s “earned as a result of a valid self-employment activity.”

There are also specific situations in which crypto can be considered earned income. For instance, crypto mining and staking are “considered self-employment when done as a part of a trade or business,” according to the SSA

In addition, the SSA noted that non-fungible tokens (NFTs) creators “may receive royalties which may be earned or unearned income depending on whether the person is engaging in a trade or business.”

What Is ‘Unearned’ Crypto?

Unearned crypto on the other hand, are assets which are “purchased with an individual’s own existing funds” and  are not 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 in the month of purchase, but a resource that has changed its form,” according to the SSA.

What Does It Mean?

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

“If money was…