A tax attorney is warning taxpayers with severe disabilities and their preparers to be careful with how they report lump sum Social Security disability payments on their income tax returns this season.
More than 1 million people with severe disabilities became beneficiaries under the Social Security Disability Insurance program last year, the firm noted. But many of them are likely to improperly report their SSDI payments on their income tax returns.
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.
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. 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.
For more information: www.onts9.com