Show Lump-sum SSDI awards for new beneficiaries require special attention; Allsup outlines other cost-saving tax tip Belleville, Ill. – February 17, 2012 – More than 1 million people with severe disabilities became beneficiaries under the Social Security Disability Insurance (SSDI) program last year. But many of them are likely to improperly report their SSDI payments on their income tax returns, according to Allsup, a nationwide provider of Social Security Disability Insurance representation and Medicare plan selection services. “It can take months and sometimes years to receive Social Security disability benefits. So, many people receive a one-time, lump-sum amount that includes back payments,” said Paul Gada, a tax attorney and personal financial planning director for the Allsup Disability Life Planning Center. “One of the most frequent questions we receive from claimants at this time of year is whether SSDI benefits are taxable and how to report lump-sum payments on their tax return.” Up to 50 percent of Social Security disability benefits are taxable each year. The actual amount is determined by adding one-half of the taxpayer’s SSDI benefits to all of his or her other income sources. For 2011, a federal income tax return must be filed if gross income is at least $19,000 for couples filing jointly and $9,550 for individuals. “The average monthly SSDI benefit for 2011 was $1,072.96 or $12,875.54 for the year. As a result, many people relying on SSDI will not owe taxes,” Gada said. “A problem can occur, however, if they mistakenly report all of a lump-sum payment received in 2011 as 2011 income, in which case they could end up paying too much in taxes.” According to Gada, it’s essential that both individuals and their tax preparers understand how to report SSDI lump-sum payments. “The IRS allows taxes on SSDI lump-sum payments to be spread over previous tax years using the current-year tax return,” Gada explained. “This means recipients do not have to go through the time or expense of filing amended returns, or pay higher taxes on their current year’s income.” People who received a lump-sum SSDI payment in 2011 will see this amount included in Box 3 of the Form SSA-1099 they receive from the Social Security Administration (SSA). Worksheets provided in IRS Publication 915 and discussed in Allsup’s free online guide, Managing Your Taxes, can be used to determine the taxable portion of a retroactive SSDI payment. However, Gada cautions it can be extremely difficult to do this by hand and recommends seeking help from a knowledgeable tax professional or, at the very least, investing in tax preparation software that covers this. Other Money-Saving Tax Tips and Free Tax Filing Help About 8.6 million disabled workers received income through the Social Security Disability Insurance program in 2011, including new beneficiaries. Below, Allsup highlights additional tips that may help people with disabilities and their caregivers save on their taxes. More information is provided in Allsup’s Managing Your Taxes guide on Allsup.com, including links to free tax filing assistance resources. Tax Credits
Tax Deductions
How much of SSDI backpay is taxable?If you have provisional income over $34,000, 85% of your benefits are taxable. If you're married filing jointly and have a combined income over $32,000, up to 50% of your disability benefits are taxable. Combined income over $44,000 will cause up to 85% of your disability benefits to be taxable.
How can I avoid paying taxes on Social Security disability?How to minimize taxes on your Social Security. Move income-generating assets into an IRA. ... . Reduce business income. ... . Minimize withdrawals from your retirement plans. ... . Donate your required minimum distribution. ... . Make sure you're taking your maximum capital loss.. Should I have taxes taken out of my Social Security disability?Taxes are not taken out of disability benefits – whether it's for Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). The Social Security Administration (SSA) will never automatically withhold taxes.
Are disability payouts taxable?You must report as income any amount you receive for your disability through an accident or health insurance plan paid for by your employer: If both you and your employer have paid the premiums for the plan, only the amount you receive for your disability that's due to your employer's payments is reported as income.
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