Are Retroactive Social Security Disability Benefits Taxable?
- To qualify as a single taxpayer under the Internal Revenue Service's guidelines you must be single, a head of household, qualifying widow or widower, married and filing separately or living apart from your spouse for all of the tax year. To determine how much, if any, of your retroactive distribution is taxable, take one-half of your Social Security disability benefits and add it to your other income. If the amount is less than $25,000, your benefits are not taxable.
- If you're a married taxpayers who files jointly with your spouse, take half of all Social Security disability payments received, including any retroactive benefits, and add it to your gross income. If the amount is less than $32,000, your benefits are not taxable.
- Married taxpayers who file separately but lived together at any time during the tax year will have to include any benefits, including retroactive benefits, received from Social Security disability as taxable income for the year in which the retroactive payment was received.
- It is possible to lower your taxes by using the lump-sum election for a retroactive distribution from Social Security disability. The IRS uses worksheets to help you determine if it is to your advantage to use this election or to claim the distribution in the year the retroactive distribution was received. There are four worksheets in Publication 915 that can help you determine if your benefits are taxable and if the lump-sum distribution option is beneficial to you.
- Retroactive Social Security benefits paid on behalf of a minor or other qualified dependent are not taxable to the taxpayer. However, the person who received the retroactive benefits may need to file his own 1040 personal income tax and claim part, or all, of the retroactive Social Security disability benefits as income. The worksheets in Publication 915 will guide you in determining if any of the retroactive Social Security benefits are taxable.