SSDI benefits may be taxed depending on other income received by your household and varies based on household composition; to assist with this complex calculation, contact an SSDI attorney in Syracuse today.
SSDI benefits owed to you can increase your income in the year they’re received; to prevent this from happening, the IRS allows the benefits owed to you from prior years to be applied against any prior tax returns that need filing.
Benefits are tax-free
When determining whether SSDI payments are tax-exempt, the IRS takes into account an individual’s other income. They add half of an SSDI award to total adjusted gross income including tax-exempt interest payments before comparing this sum against a base amount; if it surpasses this limit then some or all of their SSDI award could become taxable.
Single individuals must file taxes at a base amount of $25,000. Married individuals living separately who filed separately during all 12 months is $32,000 while couples who filed jointly filed at $44,000 as their base amount.
Large lump sum payments of SSDI benefits may be subject to taxes, however the Social Security Administration has rules in place that apply any past benefits owed towards prior tax returns, reducing your total income for the year of receipt of such benefits thereby protecting part of your back pay from being taxed as income. A Syracuse SSDI lawyer can assist in understanding these complicated rules regarding taxability of benefits.
Taxes are withheld
Tax filing season has arrived, leaving many SSDI recipients to wonder whether their benefits are taxable or not. The good news is that SSDI benefits are usually non-taxable; however, in certain circumstances they may be.
Up to 85% of SSDI benefits may be subject to taxation in some instances, though this is rare. When the Social Security Administration determines that an individual or couple’s combined income plus half their disability benefits exceed $34,000 for individuals or $44,000 for married couples, withholding taxes will begin.
Depending on household income, the Social Security Administration withholds federal taxes from monthly SSDI payments at a rate ranging from 7% to 25% and indicates this in Box 6 of an SSA-1099 form.
An SSDI attorney in Syracuse can assist in determining if your disability benefit payments are taxable, offering assistance with complex tax law to save both time and money by helping navigate tax savings strategies that may provide tax savings while helping avoid unnecessary financial disruptions.
Taxes are owed
SSDI benefits are typically not taxable; however, some beneficiaries may need to pay taxes on any backpayment awards they receive if their total income exceeds the threshold for tax filing status. As this process can be complex and time consuming, many non-accountants find it best to consult a tax professional when trying to determine this information themselves.
SSDI benefits are generally tax-exempt if your annual household income falls under $25,000 for single filers or $32,000 if filing jointly. To protect against unexpectedly increasing household income due to large lump-sum back payments, however, the IRS allows you to apply the payment to one or more prior year returns as an offset against tax liability.
IRS can garnish SSDI benefits to collect taxes you owe after sending you multiple warning letters. With the assistance of AARP’s Benefits Advisor program, however, making the most out of SSDI may be possible.
Taxes can be avoided
If you want to avoid SSDI taxes, consulting an accountant is recommended. They will review your personal finances and suggest ways to reduce tax liabilities; additionally they can assist in finding tax credits or solutions to reduce them further.
SSDI benefits become taxable only when your household income surpasses a threshold set by tax filing status and other sources of income within your household. For example, married couples making more than $32,000 annually must report half their SSDI benefits as taxable income.
In some instances, back pay may become available prior to becoming eligible for SSDI benefits. Such lump-sum payments could radically increase your annual income and potentially trigger tax liabilities; however, this scenario is uncommon; most individuals do not exceed the taxable threshold for SSDI eligibility.
