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SSDI Tax Issues
Social Security disability income is well-deserved by people who are unable to work for at least 12 months or longer. These folks are deemed completely disabled and often need to wait years to receive SSDI payments if they do not get Social Security disability help from an attorney. Once these payments arrive, they may be less than expected due to taxation. Understanding how tax plays a role in SSDI payments ensures there are no surprises.
Monthly SSDI payments and retroactive lump-sum payments representing back SSDI benefits are both subject to tax. The taxable amount depends on the total SSDI benefit amount and how much additional income the individual receives. A Social Security disability expert can help an applicant determine the amount of the SSDI payments that will be subject to tax.
SSDI payments are treated in the same manner as other Social Security payments. This means that in addition to regular income, up to 50 percent of SSDI may be taxed each year. A Social Security disability lawyer will use a worksheet to determine whether SSDI benefits will be taxable. This involves summing one half the amount listed on form SSA-1099, taxable income, and tax-exempt interest income.
The total is compare to the base amount for the filing status of the applicant. Benefits are not taxable if the first figure is less than or equal to the filing status base amount. If it exceeds the base amount, some benefits may be taxable. Base amounts for 2012 are $32,000 for joint filers and $25,000 for individual filers or married filers filing separately and living apart from the spouse for the entire tax year.
In certain situations, up to 85 percent of SSDI benefits may be taxable. This occurs when recipients are married but filing separately and living with a spouse during the tax year. If the total of all other income and one-half of SSDI benefits exceeds $34,000 if a single filer or $44,000 if a married joint filer, up to 85 percent of monthly SSDI benefits could be taxed.
IRS Publication 915, entitled Social Security and Equivalent Railroad Retirement Benefits, provides more information about SSDI taxation and can be obtained from the IRS website. A Social Security disability attorney can help SSDI recipients understand taxation of benefits and resolve tax issues. By completing the SSDI application documents correctly with help from a lawyer, an individual can prevent taxation errors from occuring.