Is Social Security Disability Back Pay Taxable?

Most of the time, Social Security Disability back payments are not taxable, but it depends on how much money you make per year and how big your lump sum payment is. If you have any questions about your Disability payments or if you’re having trouble getting approved, a social security disability lawyer in Houston can help you.

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Who Gets Social Security Disability Insurance (SSDI) Back Pay?

While the disability denial lawyers at Marc Whitehead & Associates can’t speed up the time it takes the Social Security Administration (SSA) to make a decision on your claim, we can make the process flow more smoothly by providing all the information the SSA needs to make their decision. One of the biggest frustrations for applicants filing for disability benefits is the long length of time it takes for the SSA to make a decision on a claim. Some applicants have been forced to wait over a year while the SSA decided their claim. The good news is, once a claim is approved, the beneficiary will receive social security disability back pay to cover the benefits they didn’t receive while the SSA was making its decision (minus the five-month waiting period), starting from the Effective Onset Date of their disability (usually the date they applied for benefits).

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Do You Have to Pay Taxes on a Social Security Disability Lump Sum?

This back pay can cause problems for some recipients when tax time comes around. The taxable part of a beneficiary’s lump-sum payment of benefits received in the current year is considered part of the current year’s income, even if the payment includes benefits for an earlier year. This increases a person’s reported income, potentially increasing the amount of taxes owed for the year in which they received the back-paid benefits. However, many Social Security disability benefit recipients don’t pay taxes because they don’t earn enough money, even with the back pay included. If the recipient is an individual and makes less than $25,000 (including income and SSA back pay), they won’t owe any taxes for their SSA back payment; the amount is $32,000 for married couples who file jointly. There are two ways for beneficiaries to determine the amount of income to include: they can use their current year’s income to determine the taxable part of the total benefits received in the current year; or they can elect to figure the taxable amount of a Social Security disability back pay payment for an earlier year separately, based on their income for the earlier year.

Do You Pay Taxes on SSDI Back Pay for Prior Years?

If the lump sum payment for past-due benefits will bump this year’s income above $25,000 for an individual or $32,000 for a married couple, you can assign the back pay to the years they were for. Depending on your other sources of income for those years, that may eliminate the need to pay taxes on your SSDI back pay. You can assign the money to the appropriate years on the current tax return; you don’t need to amend prior years’ tax returns.

Do You Have Enough Taxable Income to Owe Federal Income Tax?

Depending on your marital status and individual or combined income level, you might not have enough taxable income–even with the lump sum payment–to owe federal income tax. Individuals who earn less than $25,000 and married couples who earn less than $32,000 yearly don’t owe federal income tax.

Can You Deduct Attorneys’ Fees from Back Pay?

If some of your back pay is taxable and you hired a lawyer to help you with your Social Security Disability claim, you may deduct the attorney fee on a “pro rata” basis, meaning if 30% of your back pay is taxable, you can deduct 30% of your attorney’s fee.

Does SSDI Withhold Taxes on Disability Income?

Typically, people who earn SSDI don’t need to pay taxes. However, if you’re married or have other additional household income sources that count as income for tax purposes, your annual income level may be high enough for you to owe federal taxes. In that case, you can complete an IRS Form W-4V to set up Voluntary Tax Withholding (VTW) to have 7% to 25% of your monthly benefit withheld for taxes.

How a Disability Attorney Can Help You

The experienced attorneys at Marc Whitehead & Associates have helped individuals all over the U.S. obtain the disability benefits they deserve from the Social Security Administration, the Veterans Administration, and private insurance companies. We assist persons with disabilities at all levels of the claims process. If you meet the eligibility requirements and your claim for disability benefits has been turned down, we can help you file a successful appeal. In many instances, a claim is rejected not because the applicant doesn’t qualify for benefits but simply because they failed to provide the SSA, VA, or insurance company with the necessary information needed to make a decision. We’ll make sure to submit all the documentation (medical records, doctors’ reports, imaging results, lab results, etc.) required to support your claim of disability.

Schedule a Free Consultation With a Social Security Disability Lawyer

Whether you have questions about your lump-sum back payment or whether you’re still struggling to get the SSDI benefits you deserve, call Marc Whitehead & Associates to schedule a free, no-obligation, initial consultation with one of our highly experienced Social Security Disability lawyers to discuss your claim. We are based in Houston, TX, and serve clients all over the U.S. Take advantage of our 120 years of combined experience.