Do SSDI Recipients Owe Taxes For Their Lump Sum and Monthly Benefits?

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When Chicagoans are approved for SSDI and receive lump sums for back and retroactive disability benefits, it is important for them to understand how to report their lump sums on their tax returns. If they fail to report their lump sum payments correctly, they may owe substantially larger amounts than if they might otherwise. The federal government assesses taxes on up to 50 percent of the disability benefits that the disabled receive in a tax year if they exceed certain amounts. Many recipients will not have to pay taxes on their SSDI benefits, however.

When recipients receive lump sum payments that are for benefits stretching back over several years, they might make the mistake as reporting the lump some all as income during the year in which it was received. This is a mistake that can cause the taxpayer to pay much more in taxes than they would otherwise be required to pay. A Social Security lawyer in Chicago may explain how to report disability benefits and lump sum payments.

How SSDI Benefits Are Taxed

If SSDI is the only income that a taxpayer receives, it is unlikely that he or she will need to file a tax return or to pay taxes. Single taxpayers who earn less than $25,000 per year and those who file married filing jointly making less than $32,000 per year are not required to file tax returns for their SSDI benefits. Those who have other income sources in addition to their SSDI benefits can take half of their benefit total for the tax year and add it to their income from other sources. If the total is less than $25,000 for single taxpayers or $32,000 for joint returns, the benefits will not be taxed.

Reporting Lump Sum Payments

When disability applicants are finally approved for SSDI benefits, they may have already waited months or years for their approvals. They receive lump sum payments for all of the back pay benefits back to the dates of their applications, and their lump sums may also include retroactive benefits back to the date that they first became disabled. These lump sum payments may be thousands of dollars. Some recipients make the mistake of reporting the entire amount during the year that they receive their lump sums. They should only report the portion that is allocated to their current year’s benefits. A Social Security lawyer in Chicago may help.