l Security Benefits Taxable?

Many people relying on SSDI will not owe taxes. Up to half of Social Security disability benefits are taxable each year. The amount is determined by adding half of the taxpayer disability benefits to all other income sources.

The problem comes with a lump sum back benefit check. A problem can occur if all of a lump-sum payment received in 2011 is reported as income, in which case the claimant could end up paying too much in taxes.

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.

It is important to understand how to report SSDI lump-sum payments. The IRS allows taxes on SSDI lump-sum payments to be spread over previous tax years using the current-year tax return. Recipients then do not have to go through the time or expense of filing amended returns, or pay higher taxes on their current year’s income.

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 (SSA). Worksheets provided in IRS Publication 915 can be used to determine the taxable portion of a retroactive SSDI payment. Seek help from a knowledgeable tax professional. This is no place to make a mistake. Check this IRS publication.