If you were entitled to Social Security Disability Insurance benefits in 2011, you must report the amounts you received for income tax purposes. However, many people do not know the correct procedure for claiming disability benefits; nor do many know about the credits and deductions available to those with disabilities.
Unless your individual gross income in 2011 was $9,550 or more — $19,000 or more combined gross income for couples filing jointly — you do not need to file a federal income tax return. Only 50 percent of received SSDI benefits counts toward your total gross income. For example, if you received last year’s national average of $13,000 in disability benefits in 2011, only $6,500 should be included used to calculate your gross income.
Taxation of Lump-Sum SSDI Payments
Treatment of lump-sum payments of SSDI benefits is very different from monthly payments. If you received a lump-sum payment in 2011, you do not have to treat the payment as income just for that year. The IRS allows you to spread the taxable portion over previous tax years. Additionally, rather than having to file amended returns for those prior years, the calculations will be made with the current year tax return.
Tax Credits and Deductions Available
There are a number of credits and deductions available to people with disabilities and their caregivers. A few are:
- Earned Income Tax Credit — a refundable tax credit that may be available even if you did not earn enough to require filing a tax return
- Credit for people with disabilities of up to $7,500 for qualifying taxpayers
- Dependent Care Credit for some adult and child daycare costs
- Higher standard tax deduction for blind or visually impaired individuals
- Deduction of certain medical expenses if those expenses exceed 7.5 percent of adjusted gross income
- Deduction for cost of seeking SSDI benefits
Information provided here is not a substitute for legal advice or assistance with your taxes. If you collected monthly benefits or a lump-sum payment in 2011, consult with an attorney who has knowledge about taxation of disability benefits. If you already filed your taxes and did not report SSDI benefits correctly for 2011, or you failed to take advantage of credits and deductions available to you, seek the help of an experienced Social Security lawyer.