It’s tax time again, meaning that you need to get your finances in order. But, many taxpayers are not familiar with the tax rules that govern Social Security Disability payments.
If you are receiving Social Security Disability benefits, you may be overlooking important rules that could land you in hot water with the IRS. Read on to find out more about how Social Security Disability could affect your income tax liability and why you might want to contact a Social Security Disability attorney for more information.
A Higher Income Means Your SSD Benefits May Be Subject To Tax
Most Social Security recipients are not taxed on their benefits: only about one-third of current Social Security Disability recipients pay taxes on their benefits. But, if you are among those who do incur tax liability and you ignore your obligations, you could wind up writing a fatter-than-expected check to Uncle Sam.
So what determines whether or not your benefits are taxed? You attorney can best explain the nuances, but as a general rule, you will only have to pay taxes on Social Security Disability benefits if you have other substantial sources of income. This means that you will usually be paying taxes on your benefits if:
• You file a federal income tax return as an individual and have an income greater than $25,000
• You file jointly and you and your spouse have a combined income of $32,000 or more
• You are married and file a separate return
Up to 50 percent of Social Security Disability benefits are taxable each year, although most recipients pay taxes on a lower proportion of their benefits. The actual amount of your tax liability is determined by adding one-half of your Social Security Disability benefits to all your other sources of income and applying the appropriate tax calculations.
Avoid the Lump-Sum Payment Tax Pitfall
Rather than taking the form of a periodic benefits check, Social Security Disability may sometimes be distributed as a lump-sum payment. When this is the case, recipients should be cautious not to report this lump-sum as regular income for a single tax year; doing so could substantially increase the amount of taxes you pay. Instead, a series of separate IRS worksheets must be used to determine the taxable portion of your lump-sum payment.
Contact a San Francisco Social Security Disability Attorney to Learn More
If you have concerns about how Social Security Disability will affect your taxes, or if you have any general Social Security Disability questions, get the professional legal help you need. Contact an attorney today to find out how to minimize your income tax liability and get the disability benefits you need.