Q:

How do you calculate the taxes on an SSDI lump sum payment?

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Quick Answer

When calculating taxes for a lump-sum SSDI award, use the worksheets provided in IRS Publication 915, states Allsup. Not all of the award is treated as income in the tax year in which it was received, and the payment should include a breakdown of what was awarded per tax year.

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Full Answer

Both monthly and lump-sum SSDI payments are treated in the same fashion as Social Security payments, and these payments are reported on a 1099 form, reports Allsup. To determine how much of the SSDI payments is taxable, it's best to consult a tax professional, or invest in tax preparation software.

There are some important tax deductions individuals can take when calculating the tax on a lump-sum SSDI payments, according to Allsup. Deductions include the expenses paid to collect the SSDI lump-sum award, such as having a third-party represent the individual in his original claim for SSDI.

If an individual received disability payments through an insurance company or an employer's long-term disability insurance, and he had to repay the employer for the back-pay SSDI payments, he can itemize all or part of the repayments, says Allsup. This is a calculation that a tax professional can assist with in order to determine any actual tax owed.

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