Client qualified for SS disability thus he recieved a $13K back payment amt. His spouse is SE and correct me if I am wrong but I dont think their AGI (MFJ) has anything to do with this therefore the SS disablity is not taxable.
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SS payments
For income tax purposes SS is SS. It is put on the tax return and if their income is over $32000 some of the SS is taxable. Usually some of the back payments from SS are for prior years then go the the SS worksheet and allocate these amounts to prior years to see if this amount would have been taxable in those years. For tax purposes there is no such thing as SS disability. It is SS payments period.
CLR -
I agree with the exception its 1/2 SS + rest of the income is over $32,000 MFJOriginally posted by clr View Post
1/2 SS + income over $25,000 Single
And put it on the return regaurdless of the above calculations.
chrisComment
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Treatment of multi-year payment
It is fairly common for Soc Sec to pay disability benefits retroactively. I agree such payments are "Soc Sec" income and must be treated as such.
Remember you do have the option to report the payments for each tax year via an amended return (and reduce the "current" year benefits by those amounts).
If the benefits would have been taxable in every year (pay fed tax on 85%), you are pretty much spinning your wheels to go through that exercise, especially due to the time and paperwork involved.
OTOH, if it works out that for 2010 most of the total benefits received would face taxation, but in prior years would not (or other tax issues were also relevant) then the extra work can be worthwhile.
Most good software programs will guide you through this maze, both via worksheets/amended returns and "what if" scenarios for 2010.
FEComment
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I don't think amending prior returns is an option.
Following is from the IRS web site:
Back Payments
Question: I received social security benefits this year that were back benefits for prior years. Do I amend my returns for prior years? Are the back benefits paid in this year for past years taxable for this year?
Answer: You cannot amend returns for prior years to reflect social security benefits received this year. You must include the taxable part of a lump-sum payment of benefits received in the current year (reported to you on Form SSA-1099) in your current year's income, even if the payment includes benefits for an earlier year.
However, there are two ways to determine the amount of income to include:
You can use your current year's income to figure the taxable part of the total benefits received in the current year. OR
You may make an election to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year.
You can select the lump-sum election method if it lowers the taxable portion of your benefits.
Under this method you refigure the taxable part of all your benefits for the earlier year using that year’s income.
Then you subtract any taxable benefits for that year that you previously reported.
The remainder is the taxable part of the lump sum payment.
There are worksheets in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to help you calculate the taxable portion using this method.Evan Appelman, EAComment
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Oops - my bad!
A truly terrible choice of the word "amend" - you are correct, per Pub 915 you do not file any amended returns for lump sum election ("LSE") using prior years.
I have likely worked with (in-house) amended returns to calculate the before/after numbers, as that simplifies the overall Soc Sec calculations. (Or you can certainly use the similar worksheets included in Pub 915.)
Can I perhaps blame this on lack of adequate levels of Monday morning coffee??
FEComment
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