Do I Need to File Taxes for Social Security Disability?

All Social Security benefits except for Supplement Security Income (SSI) are subject to income tax. Whether or not your disability payments are taxed will rest upon the amount of your total income. To determine the taxable amount of your disability payments, you need to complete two IRS worksheets that are readily available on the IRS website.

Taxability

Whether or not your Social Security disability payments are taxable will depend mostly upon whether or not your benefit payments are your only source of income. If you have additional retirement, interest or wage income, then your benefits may be subject to tax. It's possible for up to 85 percent of your disability benefits to be subject to federal income tax.

Considerations

Lump-sum payments are usually made to recipients who were denied benefits for a previous year, then approved for benefits in a subsequent year. If you receive a lump-sum Social Security disability payment, figure the tax yourself, as a portion of the payment is retroactive. To determine if your lump-sum election will lower your taxable income, complete Worksheets 1 and 4 in IRS Publication 915. Compare the taxable amounts on Line 19 of Worksheet 1 and Line 21 of Worksheet 4. If the taxable amount on Worksheet 4 is less than the benefits on Worksheet 1, then you can elect to report a lower amount on your tax return. Don't confuse this type of lump-sum benefit with a lump-sum death benefit: No portion of lump-sum death benefits are taxable.

Calculating Tax

Gather all your W-2s and 1099s. Complete Worksheet A found in IRS Publication 915. This quick worksheet allows you to determine if any of your benefits are taxable. If, based on Worksheet A, your disability benefits are taxable, you need to complete additional worksheets to determine the exact amount of your tax. Complete your 1040 or 1040A forms, with the exception of the lines reserved for your Social Security payments, as this is the amount you're calculating for. Use the Social Security benefits worksheet found in the instructions for Form 1040 to calculate your taxable benefit amount. Use Worksheet 1 found in Publication 915 to determine the taxable amount of your benefits if you don't have the instructions for Form 1040.

Filing

Complete Form 1040 or 1040A. Enter the amount from Box 5 of your SSA-1099 on Line 20a of Form 1040 or Line 14a of Form 1040A. Enter the taxable amounts (if any) on lines 20b and 14b. Mail or electronically submit your income tax return to the IRS. Allow 10 days' processing time for electronic returns, and six to eight weeks for mailed-in returns.

Penalties

If you owe tax on your Social Security disability payments, then the IRS may charge you penalties and interest on the outstanding balance. Failure to pay penalties is ½ of 1 percent of the tax owed for each month that it's unpaid; interest charges are determined quarterly. To have tax withheld from your disability benefits, complete IRS Form W-4V and mail it to the IRS. You can download the form from the IRS website or order it by calling 800-TAX-FORM.

References

• Internal Revenue Service: Form 1040 Instructions
• Internal Revenue Service: Publication 915