Taxable SSDI benefits

The Press Release News Wire has an extensive article on taxes and SSDI recipients, especially relative to lump sum payments (resulting from the extended time it take for applications to be approved.)

The federal tax rules applying to monthly benefits are fairly straightforward, but those related to lump-sum payments of SSDI benefits are complex...-General SSDI benefits. As with all Social Security benefits, up to 50 percent of SSDI benefits are potentially subject to tax each year. To determine this, an individual adds up half his SSDI benefits plus all his other income sources, including taxable pensions, wages, interest, dividends, etc., as well as tax-exempt interest income. Married individuals filing jointly will have to pay taxes on a portion of their SSDI proceeds if their total exceeds a base amount, which for 2007 is $32,000. Most other filers will have to pay taxes on proceeds that exceed a base amount of $25,000.

This is important information for VR clients to be aware of. Though the article doesn't mention it, lump sum payments from workman's compensation should also be looked at in case the individual has some tax liability there.

As a side note: These types of lump sum payments can also impact an individual's eligibility for means tested programs, such as financial aid (which looks at the previous 12 month period) where as other programs may only look at the individual's income for the last quarter. In these situations where an individual has been impacted by a lump sum payment, advocacy can sometimes be effective in getting the agency or financial aid officer to look at actual income being generated.