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Social Security Disability and Taxes

We are entering the height of tax season, which means it is a good time to discuss how Social Security Disability Insurance (SSDI) affects taxes. Many people who receive SSDI do not report it correctly on their income tax returns, which can lead to problems with the IRS and, in some cases, smaller tax rebates.

How do you report SSDI on your income tax return, especially if you received a lump sum payment from the Social Security Administration (SSA)?

Do You Owe Taxes on Your SSDI Benefits?

First, it is important to note that many people who receive SSDI do not owe taxes because the average annual income for SSDI recipients is less than $13,000.

According to the SSA, approximately one third of SSDI beneficiaries pay taxes on their benefits. This includes individuals making more than $25,000 (SSDI plus other income sources) and spouses whose combined income is greater than $32,000.

The SSA may send you Form SSA-1099. If you do not receive this form and would like to know if your SSDI benefits are taxable, you should request it from the SSA.

Reporting Lump Sum Payments

Many people mistakenly report their entire lump sum SSDI payments as income on their tax returns, which can cause them to pay much more in taxes. Instead, recipients of lump-sum payments can spread those payments over prior tax years, and they can do this through this year's tax return.

Even if your SSDI benefits are not considered taxable income, you should still file your tax return. Depending on your other sources of income, you may be able to receive a tax refund and take advantage of other credits available, such as the Earned Income Tax Credit.

Source: Social Security Administration, "About Your Benefits: Paying Taxes on Your Benefits," 2011.

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In Minnesota, we handle Social Security Disability Insurance (SSDI) claims. Throughout the nation, we handle SSDI applications and appeals for people from Ohio to Kansas, North Dakota to Texas and everywhere in between.


Midwest Disability, P.A.
408 Northdale Boulevard Northwest
Coon Rapids, MN 55448

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