Tax season can be stressful for those who do not fully understand the process. For people who receive special assistance, such as Social Security disability benefits, this can be especially confusing.
However, taking the time to review the law and seek clarity can help to alleviate some of the stress. There are a few key facts to understand about taxes and how they affect Social Security disability benefits.
Determining what is owed
Though most recipients of this benefit do not have to pay taxes on it, a few fit in certain income brackets and must pay taxes on a portion of their benefit award. Usually, this includes people who receive payments from other sources that boost their yearly income. According to the Social Security Administration, single filers who make at least $25,000 a year, and couples who report at least $32,000 a year must pay taxes on a portion of their income. The taxable portion of the award fluctuates depending upon the filing status and income level but does not exceed 85 percent of the benefit amount.
Understanding back payments
People usually receive back payments as a lump sum and therefore assume that they report the payment for the tax year in which they receive it. This is not correct. Since the back payments are not for that year, recipients should actually report them for the years they cover. To do this, the recipients must file amendments for those years through the IRS.
Setting up withholdings
For those taxpayers who know that their income level will result in them having to pay taxes on their benefits, it may be beneficial to institute withholdings on their payments. This would help to reduce or eliminate the amount of tax they owe at the end of the year, and may, in fact, result in them receiving a refund. The benefit recipients need only to complete and submit a withholding agreement to set it up.
These are a few of the key facts that Social Security recipients should know about. For further detail, it can be helpful to review the law and speak with a knowledgeable professional.