WASHINGTON -- Social Security beneficiaries will get a one-time $250 bonus payment this month from President Obama's economic-recovery program that works out to $4.80 a week.
What the administration's "good news" notification letter didn't tell working senior citizens is that some of them will have to give all or part of the money back when they pay their taxes next year.
That eventuality sets up a confusing paperwork situation that will bring additional tax-compliance costs to working beneficiaries already struggling to pay quarterly taxes in their older years.
"This is a compliance headache that borders on being a nightmare. It's going to be complicated to reconcile these payments," said Kevin Hassett, economist at the American Enterprise Institute.
The checks that will go out later this month to millions of Social Security retirees and beneficiaries of other federal entitlement programs are part of a little-noticed provision in the $800 billion economic-recovery bill. But the notices left some recipients -- who work full or part time to supplement their income -- wondering if they will also get to keep Obama's Making Work Pay (MWP) tax cuts for lower- to middle-income workers.
In the murky world of tax-policy provisions, the answer seems to be that they can't fully benefit from both. But one finds little, if any, discussion of this in either the Internal Revenue Service explanations or the Social Security Administration's letter that went out to 50 million recipients.
"It's not well-known. I have seen no publicity to tell people drawing Social Security that they are not eligible for both the Social Security payment and the Making Work Pay tax credit," said Roberton Williams, senior fellow at the Tax Policy Center in the Urban Institute and a former tax analyst for the Congressional Budget Office.
"The only people who know this are those who carefully read the stimulus bill -- it's only 600 pages long," Williams told me. Here's the story.
Congressional and IRS officials say that you cannot double-dip into both programs and that if you are getting the bonus Social Security payment and also benefit from a lower withholding in your paychecks at work, the two will have to be reconciled when reporting income to the IRS.
"Beneficiaries who are working full time and collecting Social Security benefits will receive the one-time Social Security payment, as well as the portion of the Making Work Pay tax credit for which they are eligible," explained Matthew Beck, Democratic spokesman for the House Ways and Means Committee, which wrote the economic-recovery tax-cut provisions.