Back Pay And Paying Taxes

[Ssgtdotcom]

I have received over $40k in back pay for my self and my dependents. took 38 months to win. anyway my question is this: do I have to pay income tax on the back pay since it amounts to more than $32k? if so, how do they expect us to pay all the bills that accrued while waiting on a decision? so I will have to not spend almost half of the money just to pay them right back. that is not fair.

[Pete53]

Its a pain but you could amend your tax returns for the time frame up to 3 years and probably have no taxes to pay. A pain but it will probably save you a couple of thousand dollars. Otherwise I am afraid that you will have to lump it into one year and pay.

Its probably worth it to pay someone to do it for you.

Good Luck

[sfsd104]

Your taxes will be half of what you received - you can spread it out over the years that it was paid to include - find someone to do your taxes - don't complain - it's a blessing.

[witchdoctor]

I have received over $40k in back pay for my self and my dependents. took 38 months to win. anyway my question is this: do I have to pay income tax on the back pay since it amounts to more than $32k? if so, how do they expect us to pay all the bills that accrued while waiting on a decision? so I will have to not spend almost half of the money just to pay them right back. that is not fair.

GO TO:

http://www.irs.gov/publications/p17/ch05.html#d0e18798

scroll down about 3/4 and find this:

Veterans' benefits. Do not include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA). The following amounts paid to veterans or their families are not taxable.

Education, training, and subsistence allowances.

Disability compensation and pension payments for disabilities paid either to veterans or their families.

Grants for homes designed for wheelchair living.

Grants for motor vehicles for veterans who lost their sight or the use of their limbs.

Veterans' insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death.

Interest on insurance dividends you leave on deposit with the VA.

Benefits under a dependent-care assistance program.

The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001.

[witchdoctor]

Congrats on the backpay.

Sorry about the previous post. Wasn't clear on whether VA or SSDI.

You can separate SSDI back pay over the time frame if you want to. File amended returns for those years. Or, you can include the taxable portion in this years income, whichever results in the lower tax.

GO TO:

http://www.irs.gov/faqs/faq6.html

6.1 Social Security Income: Back Payments

I received social security benefits this year that were back pay for prior years. Do I refile my returns for prior years? Are the back benefits paid in this year for past years taxable for this year?

You must include the taxable part of a lump-sum (retroactive) payment of benefits received in the current year in your current year's income, even if the payment includes benefits for an earlier year.

Generally, you use your current year's income to figure the taxable part of the total benefits received in the current year. However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. You can elect this method if it lowers the taxable portion of your benefits. Refer to Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for a detailed explanation of the election and worksheets.

References:

Tax Topic 423, Social Security and Equivalent Railroad Retirement Benefits

Publication 915, Social Security and Equivalent Railroad Retirement Benefits

[Pete53]

Witchdoctor:

Nice post thanks

[robert51]

I received some back pay and of course after the lawyer and Medicare B etc removed i took the little test on the back and put my gross and etc and it came out lower then the 25.000 for a single person ( i did not add my VA )and i am married with 3 children so i am assuming i dont have any tax to pay , do i still need to do a returne?