Family Lump Sum SS Benefits

[lbsrt4]

My wife recently rec'd a SS disability benefit. She also rec'd a family lump sum for each of her daughters (for the kids, against her SS #). My question >> Will the kid's lump sum count against our income, or towards their income? What are the tax implications? I understand we're responsible for my wife's lump sum...due to income, 85% is taxable. Not sure how the kid's lump sum plays into all this....

Thanks in advance for any help

[Golden Rocket]

Kids Income

On most of these I've seen, the benefits are taxable to the children. Look at the social security # on the SSA-1099 you receive in January. Don't assume all of the amounts will be taxable under your wife's SS#.

Having said this, there are other issues. Firstly, the influx of a large amount of money may render your support less than 50%. This means you wouldn't be able to claim the children as dependents. Also, this is NOT earned income, and the taxation at parents' rate has been moved from age 14 to age 18. If the benefits are significant, you may run into this problem if you attempt to claim them as dependents.

Don't overlook the possibility of filing the amounts for previous years if the settlement is retroactive to include other years. This may save money in the long run.

[Bees Knees]

If your kid’s SSN is on their benefit statement, they put their share on their tax return. Since they probably don’t make $25,000 each, none of the money allocated to them will be taxable to them.

Also, if your wife received a lump-sum benefit from Social Security representing more than one year, there are special rules on how you can report it that may reduce your tax.

IRS Pub 17, explains all this at http://www.irs.gov/publications/p17/ch11.html

[Davc]

Firstly, the influx of a large amount of money may render your support less than 50%. This means you wouldn't be able to claim the children as dependents.

Assuming the money is spent on support.