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DisabilityDoes Disability Backpay Affect My Taxes?

February 28, 2022

If your disability claim has been approved and you receive a lump sum of backpay, you may be left wondering how that money will affect your taxable income. The team at  Watson and Carroll, P.C., L.L.O., are disability experts who have helped a countless number of claimants  maneuver the disability claims process. In this blog post, we discuss how your disability backpay could affect your taxes. 

Social Security Disability Lawyer in Omaha and Council Bluffs 

Watson & Carroll, P.C., L.L.O.’s Social Security Disability team can help you secure benefits needed  to support yourself. Chellsie Weber, our wildly successful and experienced disability attorney, and Abby Reid, our wonderful and thorough disability paralegal, can offer support and advice as it pertains to your disability and the benefits approval process. Remember, you’re more likely to have a successful disability claim with an attorney by your side. Call us today at 402-991-2100. You also can share your story here.

How to Get Your Disability Backpay

Getting your disability claim approved is a milestone. And, if like many claimants, it has taken several months–or even years– to get your claim approved, you could receive a considerable amount of backpay. This backpay is your monthly benefits dating back to the date you would have first been eligible for disability benefits. When you receive this lump sum, you may be excited because you can catch up on your bills. Then again, you may be concerned about the tax implications. It’s a common worry that makes sense. 

Many people won’t be taxed on their backpay because their income is so low during the claims process because they were unable to work. The IRS will allow the taxpayer to allocate the past-due disability benefits to the year in which they should have been received, and you would not have to amend any prior year tax returns to allocate those funds to that specific year’s tax return. 

Do You Owe Taxes On Backpay? 

The Social Security Administration (SSA) will send the claimant a form, which is called SSA-1099. In Box 3 of the form, it will state how much of your backpay was owed to you for each of the previous years that you accrued backpay during the claims process.  If you owe back taxes, you would still pay taxes owed on the backpay with your current year’s tax return, but the way that the 1099 divides your backpay, you would be able to figure out if you owe taxes or how much you owe in taxes based on the amount of pay attributable to each year. 

Any year in which your total income, including your backpay, was  $25,000 – or less than $32,000 if you were married – for each individual year, such as 2019, 2020, or 2021, you would not be responsible for any taxes. You will be sent a form that shows you how much backpay is attributed to each year. Only a small percentage of disability claimants owe federal income taxes and usually, that is because a spouse is working or there is passive income from investments or rental properties. 

If you expect to owe federal income taxes on disability payments, you can avoid owing a large amount by setting up Voluntary Tax Withholding (VTW). You can set up VTW through IRS Form W-4V and send it to your local SSA field office. If you are not sure about whether you will owe taxes on your disability benefits, talk with your disability lawyer or a tax professional.

About Watson & Carroll 

Watson & Carroll, P.C., L.L.O., is not a high-volume law firm that only speaks with clients when it is absolutely necessary. For us, it’s personal. Our team works closely with our clients and their loved ones – not only so that we understand their challenges and concerns, but so we can tailor our approach to address those factors, aggressively pursue results, and secure peace of mind. Whether it is a medical malpractice case or advocating for disability benefits, we work to protect our clients and make sure their rights are upheld. 

Our firm can help. Call 402-991-2100 or email contact@watsoncarroll.com. You also can fill out our confidential contact form

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