Social Security Disability Claims

Today TaxMama wants to talk about a grave problem. Social Security Disability claims are rising at an alarming rate.  In just one year, from 2008 to 2009, Social Security disability applications rose by 21 percent. This kind of growth threatens to sink the system.

Dear Family,

The government is surprised at this dramatic growth in claims from people with long, high-paying job histories?

Wake up folks! What do you think managers and executives will do when they suddenly find themselves out of work, with no prospect of finding comparable work – and they’re too young to collect Social Security?

They’ll head for the disability option, which lets you collect SS benefits early. With the intense stresses of their jobs, often the only thing keeping these folks from being ill was sheer force of will. By the time they got laid off, they have heart conditions, diabetes, or worse – and may well qualify for disability due to “a medical issue that prevents them from holding a job for at least a year.”

The one thing protecting the system is that the Social Security Administration routinely rejects all claims the first time around. The only people who get SS Disability benefits are those stubborn enough to persist.

Then, by the time they finally are accepted, they receive several years of benefits at one time – from the date they first qualified as disabled. That huge lump sum is a boon – that may arrive too late to save someone’s home. And it comes with tax liabilities, since it’s coming all at once.

But there is a way around the taxes. You can use a special income averaging method specifically designed for these lump sums.

The article I read didn’t address how this spike was affecting state disability coffers. But I can bet those funds are getting hit hard, too. It takes very little time to get accepted into those programs – mostly a doctor simply has to sign a form. It’s a terrific alternative for someone who’s unemployed. Wouldn’t you rather collect SDI, which is tax-free; than unemployment insurance – which is taxable?

Do it right and the government will be paying out – without not getting much back in the way of taxes. Uh oh! Are the SS funds and disability funds really a Ponzi scheme too? Or are they sufficiently funded to meet the citizens’ needs?

And remember, you can find answers to all kinds of questions about Social Security Disability and other tax issues, free. Where? Where else? At www.TaxMama.com.

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