Today TaxMama hears from Brad in the Tax Forum, who tells us , “I was awarded social security disability after three years. I received substantial back pay, around $33,000. This settlement will be added to my spouse’s income. Is this taxable? Will I have to report the FULL amount paid to me in 06? Or must I file an amendment for previous years?”
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Hi Brad
Yes, I see why you’re concerned. It’s always wonderful to receive that big catch-up check – until you see how much extra it costs you in taxes that year.
I wish that Congress would arrange to adjust the way this is reported. If you had gotten those checks year by year, the taxes would have been quite small.
But, alas, those fools have no sympathy for elderly and infirm.
So, all the money is income in the year you received it.
You will include the Gross amount of the SS income in your tax return entries. (The software will compute the actual taxable percentage – about 85%) By ‘gross’ I mean, the amount before you deduct the Medicare premiums.
The Medicare premiums will go on your Schedule A – Medical Expenses.
What makes the disability taxable? Well, Social Security Disability is treated just like regular Social Security Income. The rules are the same.
So, if you’re married and your joint income is over $32,000, part of your SS income becomes taxable. When your income is over $44,000 85% of your SS income is taxable. (Filing Separately won’t solve the problem. MFS – 85% of the SS income is immediately taxable)
You can read more about it here in IRS Publication 17
https://www.irs.gov/publications/p17/ch11.html#d0e29024
Oh well, next year will be more normal!
And remember, you’ll find answers to lots of questions about SSI and other tax information, free. Where? At TaxMama.com
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- IRS Publication 17 :: Reporting Social Security Income
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