Do I Have to Pay Taxes on My Lump Sum Backpayment of my Social Security Disability Benefits?
Its possible, but it depends on your entire taxable income for the year. Disability backpay can bump up your taxable income in the year you receive the lump sum payment from Social Security. This could lead to you paying more in taxes. Many times though, part of the backpay that you receive should have been paid to you last year or even the year before. For example, lets say you filed your disability application in 2022, but SSA found that you were disabled back to 2020, in this scenario, Social Security does allow you to attribute part of your back payment to prior years. Its important to consult with a tax accountant to help you with this.
If you file your taxes individually (single) and you received less than $25,000 in disability backpay and income during that year, you won't owe any taxes on your Social Security disability income. The limit is higher if you are married and filed jointly. If you are married and file your taxes jointly (with your spouse) and you received less than $32,000 in backpay and income during the year, you won't owe any taxes on your disability income. If your backpay and income are over those amounts, the IRS will allow you to allocate your past-due disability benefits to the year you should have received them, and you don't have to “amend” your prior year tax returns to do it. Social Security should have sent you a form called SSA-1099. It will state in Box 3 how much of your disability backpay was owed to you for each of the previous years you accrued back pay.
However, lets say that after attributing some of your back pay to the previous years, you still are over the $25,000 as an individual or $32,000 married, you will only pay taxes on the money thats over the limits. Its advised that you talk to a tax professional to assist you. Note that if you hired a social security disability attorney to help you win your Social Security benefits, you can deduct the cost of the attorney's fee from your taxable income so you don't have to pay taxes on this amount.