TAXES

There are two main types of SSDI payments that are subject to tax:

• SSDI monthly payment, and
• Lump-sum payments of SSDI benefits.

How much is taxable depends on the total amount of your benefits and other sources of income.

SSDI Monthly Benefit Payments

When calculating the taxable amount of benefits SSDI monthly payments are treated like regular Social Security payments and reported on Form SSA-1099.

As a general rule fifty percent (50%) of your benefits may be taxable each year pluse all other income.

SSDI Benefits Taxable Worksheet

A.
Enter the amount from box 5 of Form SSA-1099 issued by the SSA to report amounts paid to a person and taxes withheld for the year. If you received more than one form for the year, combine all the amounts from box 5 and enter the total…..
Note: If the amount here is zero or less, stop here; none of your benefits are taxable this year.
B. Enter one-half of the amount on line A…
C.
Enter your taxable pensions, wages, interest, dividends, and other taxable income…
D.
Enter any tax-exempt interest income (such as interest on municipal bonds) and any exclusions from income (listed earlier)…
E. Add lines B, C and D…

* When you complete the worksheet, compare the amount on line E to the base amount for your filing status
* If the mount on line E equals or is less than the base amount for your filing status, none of your benefits are taxable this year.
* If the amount on line E is more than your base amount, some of your benefits may be taxable.

2009 base amounts:

* $25,000 if you are single, head of household or qualifying widow(er)
* $25,000 if you are married filing separately and lived apart from your spouse for all of 2009
* $32,000 if you are married filing jointly, or
* $0 if you are married filing separately and lived with your spouse at any time during 2009

Deductions and Credits

  • You can deduct expenses paid to collect your retroactive benefit.
  • If your received disability payments through an employer’s long term disability and you had to repay these benefits you can deduct this.
  • Lump Sum Payment of Benefits

A lump sum award is a payment that includes benefits for earlier years. For tax purposes the retroactive award is accounted for in the tax year of the award. However, you do not treat all of the back benefit award as income in the tax year received, this will result in paying unnecessary taxes.

If you receive your back benefit award in 2009 which includes earlier years you want to report this on your 2009 return. Since the earlier year’s taxable benefits are included in your 2009 income, no adjustment is made to returns filed in earlier years, do not file an amended return.
To figure out the table portion of the back benefit for earlier years there is a worksheet provided by the IRS which is publication 915.