More than 9.6 million people with disabilities and their families rely on Social Security Disability Insurance (SSDI) benefits. Many, however, may be paying more taxes than necessary or missing out on important credits and deductions, according to a nationwide provider of Social Security disability representation and Medicare services. Those with disabilities may be unaware of certain tax provisions designed to decrease their tax liability. Some of these people with disabilities may have originally experience an occupational injury.
Three Critical Areas to Consider
1. Understand How SSDI and Other Benefits are Taxed
Monthly SSDI Benefits
Up to 50% of SSDI benefits may be taxed. The amount taxed is determined by adding up one-half of your SSDI benefits plus ALL of your other income sources. You pay taxes on any amount above a base level. In 2009, the base level was $32,000 for couples filing jointly and $25,000 for individuals.
The average 2009 monthly SSDI benefit was under $1,100, or $13,200 annually. That means many SSDI recipients own no taxes. However, a tax return should be filed to take advantage of available credits and deductions.
The average 2009 monthly SSDI benefit was under $1,100, or $13,200 annually. That means many SSDI recipients own no taxes. However, a tax return should be filed to take advantage of available credits and deductions.
Lump-sum SSDI Benefits
It can take two to four years to receive disability benefits, resulting in a lump-sum back payment amount. Paying taxes on this amount in one year is a mistake and may be financially devastating. The IRS allows taxes assessed on your lump-sum payment to be spread over previous tax years, using your current-year tax return, without filing an amended return. However, the calculations are complex, and it’s highly recommended filers seek tax assistance.
Other Benefit Sources
Many disabled people may rely on additional taxable income. Usually, workers’ compensation benefits and compensatory damages for injuries are not taxable.
Taxability of long-term disability (LTD) insurance benefits depends on how the premiums are paid. If paid with after-tax dollars, the benefits are not included in taxable income. If paid with pre-tax dollars, as part of a cafeteria plan for example, or paid by the employer, the benefits are considered taxable income.
2. Explore Tax Credits Providing A Dollar-for-Dollar Tax Reduction or Refund
Earned Income Tax Credit (EITC) (Up To $5,657)
EITC is a refundable credit. When applied any amount higher than a person’s tax bill can be received as a tax refund. To be eligible, a taxpayer or spouse was employed for a part of 2009, earned below $13,440 to $43,279, depending upon filing status and the number of children claimed, and had investment income of no more than $3,100.
Credit for the Disabled (up to $7,500)
Disabled persons are eligible for this credit if they receive taxable disability income from a former employer’s accident, health or pension plan, and have 2009 adjusted gross income under $17,500 for single filers; under $20,000 for joint filers with one spouse eligible for the credit; or under $25,000 for joint filers with both spouses eligible.
Dependent Care Credit
If someone is paid to care for a dependent or spouse with physical or mental impairments while the primary caregiver works or looks for work, a tax credit of up to 35% of day care costs may be taken.
3. Use Tax Deductions to Further Lower Tax Costs
Standard Tax Deduction May Increase
Blind or visually impaired taxpayers may be entitled to a higher standard tax deduction.
Medical Deductions May Apply
Taxpayers who itemize can deduct medical costs equaling more than 7.5% of their adjusted gross income. Deductible expenses include medical and dental costs, travel expenses for treatment, long-term care insurance, medical insurance premiums and, for those with visual, hearing and physical disabilities, costs for certain equipment. (workersxzcompxzkit)
Deduct the Costs of Seeking SSDI Benefits
If you hire a representativeto help you get your SSDI benefits and you itemize, you can deduct the fee you pay your representative for tax advice and preparing your return.
We don't give tax advice, so check with your accounting and legal professionals to see whether this information may apply (or may not) in your situation.
Author Robert Elliott, executive vice president, Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers' Compensation costs, including airlines, health care, manufacturing, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. He can be contacted at: Robert_Elliott@ReduceYourWorkersComp.com or 860-553-6604.
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