The 2011 tax filing deadline is fast approaching on April 17, 2012. Oftentimes social security disability recipients are confused with respect to if and how they must report SSDI or SSI disability benefits on their income tax returns. Unfortunately, many disabled Americans improperly report their disability benefits on their tax returns. In order to avoid overpaying or underpaying your income taxes, it is important to understand how to report monthly and lump sum disability payments on your income tax returns.
The following are some important things to remember at tax time:
For the 2011 tax year, those individuals who earned less than $9,550, and those married couples filing jointly who earned less than $19,000, are not required to file a federal income tax return.
Up to half of an individual’s social security disability benefit payments are taxable. In other words, a beneficiary with other income sources is required to add half of their disability payments to all other income in order to arrive at their gross income for the year.
Take note when reporting lump sum payments to the period to which they apply. The Internal Revenue Service (IRS) allows disabled Americans to spread out lump sum payments over previous filing years on their tax return for the year in which the payment was made. For instance, even if a lump sum payment is received in 2011, the entire amount does not need to be reported in 2011. Rather the lump sum payment may be spread out over a period of years. Accordingly, a disability recipient may lower their tax burden without being required to amend prior year returns.
Lump sum payments are reported in Box 3 of the SSA’s Form SSA-1099.
Legal fees paid in 2011 that were incurred as part of legal representation to obtain social security disability benefits may also be used to lower tax burden.
Because the tax laws and social security disability laws are complex, with several nuances, you may wish to consult with a skilled social security disability attorney and/or accountant when filing a 2011 tax return that includes social security disability benefit payments. The knowledgeable Chicago disability benefit attorneys at Ankin Law Offices, LLC focus on advising and representing clients in pursuit of their social security disability claim. Contact our office to you any questions regarding the impact of social security disability benefits on your income tax burden.
Howard Ankin of Ankin Law Office LLC handles social security disability cases, as well as workers’ compensation and personal injury cases. Mr. Ankin can be reached at (312) 600-0000 and [email protected]