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Are Your Disability Benefits Taxable?

Taxable Social Security BenefitsTaxable Social Security Benefits

The answer is yes, they are partly taxable, depending on what your total income is, and whether you file separately or jointly. And, of course, there are a couple of technical and/or tricky points that may come into play. If you aren’t a tax whiz yourself, it’s time to call your Livonia disability lawyer.

The General Income Thresholds

Individuals with income over $25,000 up to $34,000 pay tax on about half of their benefits; if the income exceeds $34,000 they pay tax on 85% of their disability benefits. For couples, the corresponding limits are $32,000 through $44,000, and above $44,000.

Computing the Relevant Income

The first tricky part is computing your income. The formula adopted by the IRS takes half of the adjusted gross income from your 1040, then adds in half of the disability benefits received during the year, plus the amount of any interest that was excluded from your adjusted gross income. Any benefits paid to your child on your account do not have to be taken into account in determining what your income is, but the child has to make a separate calculation to determine if the child has to pay taxes under the rules described above.

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Other Issues Affecting Tax Liability

If the basic rules weren’t complicated enough, you should be aware of several other issues that also affect how much taxes you actually need to pay:

  • Lump sum payments of back benefits increase your tax liability for the year they were received, but, if the lump sum includes benefits that were payable in a prior year, you may be able to assign that income to the prior year and recalculate that year’s liability.
  • You may be able to deduct a portion of your attorney’s fee in computing your tax liability, but only if you meet the “2% of adjusted gross income” threshold for miscellaneous itemized deductions.
  • You may be entitled to some tax relief if your receipt of the Social Security Disability benefits triggered an obligation to repay a commercial disability insurance company.

The law and the concepts are both complex. Talk to an experienced Livonia disability lawyer. Call J.B. Bieske and Jennifer Alfonsi, Attorneys at Law, at (800) 331-3530.

J.B. Bieske & Jennifer Alfonsi, Attorneys at Law

19991 Hall Road, Suite 202
Macomb, MI 48044
Phone: 586-977-8100
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800-331-3530