Most of the time, Social Security Disability Insurance (SSDI) back payments are not taxable, but it depends on how much money you make per year and how big your lump sum payment is. Because disability back pay is often paid in a large lump sum covering months or even years of benefits, it can create confusion when tax season arrives. An experienced Social Security Disability lawyer can help you make informed financial decisions. Who Gets Social Security Disability Insurance Back Pay?
One of the biggest frustrations for applicants filing for disability benefits is the long time it takes for the SSA to decide on a claim. Some applicants have been forced to wait over a year while the SSA decides their claim. The good news is, once your claim is approved, you will receive the Social Security Disability back pay you are owed to cover the benefits you didn‘t receive while the SSA was making its decision (minus the five-month waiting period). That coverage starts from the Effective Onset Date of their disability (usually the date they applied for benefits).For a free legal consultation, call (800) 562-9830
Do You Have to Pay Taxes on a Social Security Disability Lump Sum?
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 also 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.Do You Pay Taxes on SSDI Back Pay for Prior Years?
If you receive a lump-sum Social Security Disability Insurance payment that includes benefits for prior years, you generally do not amend your old tax returns. Instead, the payment is reported in the year you receive it and may be taxable in that year. There are two ways to calculate the taxable portion of your Social Security Disability back pay:- Use your current year’s income to determine how much of the entire lump-sum payment is taxable.
- Use the lump-sum election method, which allows you to calculate the taxable portion of the back benefits using your income from the year(s) the benefits were originally owed. This method can reduce the amount of taxable benefits.
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‘s 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?
In most cases, the Social Security Administration does not automatically withhold federal income taxes from SSDI payments, including monthly benefits and any lump-sum back pay. That’s because many recipients don’t earn enough overall income for their SSDI to be taxable. However, Social Security Disability back pay can become taxable if you have additional sources of income, such as investment earnings, rental income, or a spouse’s wages. When your total household income rises above certain thresholds, a portion of your disability benefits may be subject to federal tax. If you expect to owe taxes, you can choose to have money withheld in advance. This is done by submitting IRS Form W-4V to the Internal Revenue Service. Through voluntary tax withholding, you can request that 7%, 10%, 15%, or 25% of your SSDI benefits be set aside for federal taxes.Can the IRS Take Your SSDI Back Pay?
Yes, the IRS can take your SSDI back pay, but only in limited situations. SSDI back pay is generally protected, but it can be reduced if you owe certain types of federal or legally enforced debts. This may include unpaid federal taxes, past-due child support, or defaulted federal student loans. In those cases, the government may intercept part of your payment through collection programs.How a Social Security Disability Claims Attorney Can Help You
At Marc Whitehead & Associates, we 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 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 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. Call us today to learn more about how we can help with your Social Security Disability benefits. We can help you avoid financial struggles.Call or text (800) 562-9830 or complete a Free Case Evaluation form
