SSD Payments and the IRS

As the 2016 tax deadline approaches, people receiving Social Security Disability Income often wonder if they’ll owe taxes on SSDI payments. However, like most other aspects of the SSDI program, the answer is: It depends.

The Internal Revenue considers a variety of factors to determine your tax obligation, including your income, your spouse’s income, and whether you plan to file a joint or individual return. Following is a general overview of potential SSDI tax scenarios that is meant to serve as a basic information guide in assisting claimants by alerting them of potential tax consequences surrounding the receipt of SSDI benefits and prompt further investigation and inquiry with a licensed tax professional if needed.

Income

The Social Security Administration estimates about one-third of SSDI recipients end up paying taxes on benefits. If you’ve continued to work while collecting SSDI, or your spouse is working, you may have earned enough to trigger SSDI taxes.

The Internal Revenue Service considers a base amount – that’s one half of your benefits, plus all other income – when determining whether you owe taxes on SSDI benefits. SSDI payments are taxable when:

• You are single, the head of a household, or a qualifying widow/widower whose 2015 income exceeded $25,000
• You are married, but lived apart from your spouse for all of 2015, are filing separately, and earned more than $25,000
• You are married, filing jointly, and your joint income exceeded $32,000
• You are married, lived with your spouse at any point in 2015, and are filing separately (in this scenario all SSDI payments, regardless of income, are taxable).

If you are married, the decision to file jointly or separately can have a big impact on your tax obligation. To ensure you choose the right filing status, you might wish to work through the available IRS worksheets to determine whether individual or joint filing would be more favorable.

Worksheets and Forms

If you and your spouse received only SSDI or railroad retirement benefits in 2015, it’s unlikely those payments will be taxed, and you may not be required to file a tax return. But it’s still a good idea to complete worksheets, because you could be subject to penalties if you assume you’re not required to file a return but the IRS disagrees.

The three worksheets that apply to SSDI recipients are included in:

• Form 1040 instructions. All taxpayers can use the 1040 filing form. It is generally easier to use than Form 1040A, but it does not allow for itemized deductions. The 105-page instruction book walks taxpayers through each section of the form, helping them calculate tax obligations and deductions.
• Form 1040A instructions. The 1040A allows taxpayers to submit additional documentation of itemized deductions, including costs of medical equipment such as wheelchairs, hearing aids, and home modifications that aid in mobility. The 88-page instruction booklet helps taxpayers identify possible deductions.
• Publication 915. This publication is specifically for recipients of disability and/or railroad retirement benefits. It is useful for understanding how lump-sum back payments are taxed. It also explains how Medicare premiums, workers’ compensation, and attorney fees (if an attorney handled your SSDI claim) affect your taxes.

While these worksheets are a good starting point for determining your tax obligation, you may find you’ll need other forms, such as Publication 575, which covers pension and annuity income. If you have federal income tax voluntarily withheld from your disability or retirement benefits, you’ll need Form W-4V, as well.

SSDI recipients know all too well the confusion and frustration of applying for benefits. And when tax time rolls around, many people experience similar feelings, as they try to sort out what documentation they need to submit. An experienced tax professional such as a CPA can help benefit recipients take the right steps to file their taxes. Please note that any accounting, business or tax advice contained in this basic information guide, including attachments and/or active web-links, is not intended as a thorough, in-depth analysis of specific issues, nor shall such be considered a substitute for a formal opinion from a tax professional, nor is it sufficient to avoid tax-related penalties. It is recommended that if further inquiry is desired, that the reader consult with a properly licensed tax professional to perform the requisite research and provide a detailed written analysis for their particular situation.

John R. Colvin, Attorney at Law, has successfully represented SSDI clients throughout Tennessee and Alabama who have needed help with obtaining SSDI benefits. For 20 years, he has been helping people with disabilities understand and access SSDI benefits, and he is ready to help you. call (931) 962-1044 or submit this online form. Put his bold approach and client focus to work for you.

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