Social Security Disability

[zeros]

Is this taxed like regular social security?

[New York Enrolled Agent]

Is this taxed like regular social security?

Yes


From TCS 2002-77
“since 1984 Social Security disability benefits have been treated in the same manner as other Social Security benefits.”

[Zee]

Interesting Case

Here's an interesting case. The benefits from a taxpayer-paid disability policy required an offset for any social security disability benefits received. The taxpayer applied for SS disability benefits and received SS disability benefits retroactively which were paid back to the insurance company. The SS benefits became taxable. Just something else to watch for if dealing with clients receiving disability income from a policy they purchased.

https://www.ustaxcourt.gov/InOpHistoric/EnglishSummary.Gerber.SUM.WPD.pdf

[DaveO]

Taxable but they are excludable from income when appyling for certain benefits. Here they don't count as income when applying for a homestead exemption.

[Burke]

Soc Sec Benefits are excludable from income tax in a lot of states. Probably the majority of them. I know some states tax them.

[DaveO]

Sadly, Nebraska taxes SS to the same extent as the Fed. There is supposed to be some relief coming this year.

[Gary2]

You're probably aware of this already, but just in case: Retroactive Social Security disability payments are the main reason for looking at the Lump Sum Election on Social Security. It doesn't always help, but it's always something that should be calculated.

[Zee]

You're probably aware of this already, but just in case: Retroactive Social Security disability payments are the main reason for looking at the Lump Sum Election on Social Security. It doesn't always help, but it's always something that should be calculated.

Good point! Drake SW requires a manual calculation using IRS worksheets. Does other SW include a worksheet?

[Burke]

ATX has a Lump Sum Election worksheet and it will calculate it for you.

[FEDUKE404]

Software shortfall

Good point! Drake SW requires a manual calculation using IRS worksheets. Does other SW include a worksheet?

Can't believe Drake does not provide worksheets for this very common situation.

Since it is now apparently unwise to mention here other "lesser" software providers, let's just say I know that "other tax software" DOES have such worksheets readily available. Generally the greatest amount of preparer work is finding the tax return data for the applicable year(s) covered by the retroactive distribution.

Oh yes: Glad I don't live in Nebraska !!

FE

[S T]

Yes, one of the items I do not like about Drake they do not calculate the LSE in their software, fortunately I have CFS tax tools

Sandy

[FEDUKE404]

States that DO tax Social Security benefits

FYI (Thirteen states currently assess income tax on Social Security benefits.)

http://www.fool.com/retirement/general/2014/08/16/13-states-that-tax-social-security-income.aspx

Think I'll scratch Colorado from my potential retirement locations!

FE