April 23, 2014

Tax Treatment of SSDI Benefits and Lump Sum Payments

With delays in the Social Security decision making process reaching 3 years, those fortunate claimants who are approved will end up with large lump sum payments.  I have seen several instances where the lump sum benefit check exceeded $50,000.

A question I hear more and more has to do with the tax implications of lump sum Social Security payments.  I found a helpful article at the MarketWatch web site that gives a nice overview of Social Security disability benefits and taxes.  This article was written by Eva Rosenberg a/k/a TaxMama.

Depending upon your household income, some of your SSDI payments may be treated as income for tax purposes.  In 2007, for a husband and wife filing jointly, if you joint income (including your SSDI payment) falls below $32,000, 50% of your SSDI benefit is taxable.  If you income exceeds $44,000 annually, 85% of your SSDI benefit is taxable.

Your lump sum SSDI payment is eligible for special treatment by the IRS – there are rules that allow you to spread out the taxes over several years.  Rosenberg notes that the calculations pursuant to IRS Publication 915 can be complex, so you may want to engage the services of a CPA or enrolled agent to help you.

For more information check out Rosenberg’s TaxMama.com site, which offers a great deal of useful and easy to understand tax help.

[tags] tax treatment of SSDI benefits, tax treatment of Social Security lump sum payments, TaxMama, Eva Rosenberg [/tags]

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Jonathan Ginsberg represents Social Security disability claimants in Georgia. In practice for over 23 years, Jonathan publishes a widely known disability blog, a podcast and several disability web sites. In 2004, Jonathan published a "how to" book about Social Security disability called the Disability Answer Guide. Jonathan lives with his wife and 2 children in Atlanta.