Ssdi & Income Taxes

[poolguy11550]

Hi folks, I was awarded SSDI benefits during 2009 and recently got the income statement for reporting this income to the IRS. A friend of a friend, tells me to file separate rather than a joint return. I know nothing about this issue but is this accurate info?

[Papa]

Poolguy,

There is a lot of information that you would need to supply in order to get an answer. What is your wife's income? Do you have other income (do not include your VA)? It is usually not a good thing to file seperately. The reason is is that you lose alot of tax benefits that you would get by married filing jointly.

Papa

[free_spirit_etc]

Hi folks, I was awarded SSDI benefits during 2009 and recently got the income statement for reporting this income to the IRS. A friend of a friend, tells me to file separate rather than a joint return. I know nothing about this issue but is this accurate info?

They have lots of resources online for filing taxes. Some of them are free. Or you might have a friend that has some tax software. You can use the software or program and switch around, figuring out your taxes in different ways (like joint vs. separate) and see how the numbers come out. Some of the programs will even make those comparisons for you in one shot.

There is also a lot of information online for how they figure the amount of your social security is taxable - to get the actual scoop of what goes on with the numbers.

You can read that if you want a complete understanding - but the easiest way to get an idea of what to do is to figure your taxes different ways and decide what to do.

I do seem to recall that I read somewhere that one of the ways of filing is not reversible (i.e. you can't file an amended return and change it) - but I can't remember which way that was.

I will see if I can find it.

Hope this helps!

Free

Edited January 8, 2010 by free_spirit_etc

[free_spirit_etc]

Ah... Here is the info I was talking about.

If you file separate returns, you can amend the filing status later. If you file joint returns, you can not amend the filing status. You can file differently in different years - but you can't go back and change the return that has been filed (IF you file jointly).

http://www.irs.gov/publications/p17/ch02.html

"Joint Return After Separate Returns

You can change your filing status by filing an amended return using Form 1040X.

If you or your spouse (or both of you) file a separate return, you generally can change to a joint return any time within 3 years from the due date of the separate return or returns. This does not include any extensions. A separate return includes a return filed by you or your spouse claiming married filing separately, single, or head of household filing status.

Separate Returns After Joint Return

Once you file a joint return, you cannot choose to file separate returns for that year after the due date of the return."

Edited January 8, 2010 by free_spirit_etc

[free_spirit_etc]

From: http://www.ssa.gov/planners/taxes.htm

Taxes and your Social Security benefits

Some people have to pay federal income taxes on their Social Security benefits. This usually happens only if you have other substantial income (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to your benefits.

No one pays federal income tax on more than 85 percent of his or her Social Security benefits based on Internal Revenue Service (IRS) rules. If you:

* file a federal tax return as an "individual" and your combined income* is

o between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.

o

more than $34,000, up to 85 percent of your benefits may be taxable.

* file a joint return, and you and your spouse have a combined income* that is

o between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits

o

more than $44,000, up to 85 percent of your benefits may be taxable.

* are married and file a separate tax return, you probably will pay taxes on your benefits.

*Note:

Your adjusted gross income

+ Nontaxable interest

+ ½ of your Social Security benefits

= Your "combined income"

Each January you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received in the previous year. You can use this Benefit Statement when you complete your federal income tax return to find out if your benefits are subject to tax.

If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.

For more information about taxation of benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

[poolguy11550]

Thanks for the info Free, what about the benefit for a child, how is that taxed?

[free_spirit_etc]

Thanks for the info Free, what about the benefit for a child, how is that taxed?

Pool guy,

I will have to look that up. I've read some info on it, but skip over some of it since my son is legally an adult.

If you are filing taxes on behalf of the child, I doubt they would pay any tax unless they have significant income from other sources.

I do know, in my son's case, I have already played around with the figures and even though he receives monthly payments and received a 2 year retro check this year, and some interest (but not much) he won't have to pay any taxes, regardless of whether he claimed himself or I claimed him as a dependent - I tried it both ways.

The claiming a child as a dependent part is also something to look into.

The rules for claiming your own child as a dependent is that the child did not provide over one-half of their own support. (It used to be that YOU provided over 1/2 - Now it is just that THEY did not - that is a sometimes a big difference).

According to the tax forums I checked out - SSD is considered the child's own income. SSI is not. SSI is considered "third party" support - as it is based on need. So a child's SSI income is not considered contributions toward their own support.

But I read most of the information as it applies in my case - and adult disabled children. So I am not certain if the child is younger, and the payments are made to the parents on behalf of the child - if it is treated the same way.

I suspect that it is - as the reason the two types of payments are treated differently is that SSI is a needs based (i.e. welfare type) of program where the money is not really "yours" - it is payments made on the basis of age / disability and income. SSD (and dependent / survivor benefits) are actually an insurance program - that you paid intoto have that insurance - and thus the payments are considered "property" that actually "belongs" to you. Kind of technical - but there is a difference.

Anyway - even if the child's payment is considered their own income, they may still be claimed as your dependent if you provided over one-half of their support. This would include their respective "share" of any family expenses, as well as their individual expenses.

And from what I have found they don't just count all the money the child received as "used toward their support." It actually has to be spent as such to count. For instance, if the child received $8,000, but $4,000 is in savings or something - they only used $4,000 toward their support.

With children involved - that also changes the mix of whether the couple should file joint or separate, because some of the credits and deductions are treated differently based on the filing status. I think the child and dependent care tax credit is one of them.

And, I again, like the tax preparation software because you can play around with it and see what affects what - which also helps with future planning.

Hope this helps,

Free

Edited January 8, 2010 by free_spirit_etc