Allsup outlines tax credits, deductions that can save people thousands of dollars when they file, even if they owe nothing; taxability of Social Security disability and other benefits are common areas of confusion
Belleville, Ill. – February 22, 2010 – More than 9.6 million people with disabilities and their family members rely on Social Security Disability Insurance (SSDI) benefits. However, many may be paying more in taxes than necessary or missing out on important credits and deductions, according to Allsup, a nationwide provider of Social Security disability representation and Medicare services.
“People with disabilities may be relieved to find out they owe little in taxes, not realizing that certain tax provisions could provide a bigger benefit for their wallet,” said Paul Gada, a tax attorney and personal financial planning director for the Allsup Disability Life Planning Center.
Below, Allsup highlights three critical areas that can help people with disabilities minimize their taxes. More information is provided in the Managing Your Taxes section on Allsup.com, as well as in the online overview of tax savings opportunities in the American Recovery and Reinvestment Act of 2009.
Three Critical Steps for Tax Season
1. Understand how your SSDI and other benefits are taxed.
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Monthly SSDI benefits. Up to 50 percent of your SSDI benefits may be taxed, which is determined by adding up one-half of your SSDI benefits plus all of your other income sources. Taxes are owed on any amount above a base level. In 2009, the base level was $32,000 for couples filing jointly and $25,000 for individuals.
“The average 2009 monthly SSDI benefit was under $1,100, or $13,200 annually, so many people relying on SSDI will not owe any taxes,” Gada said. “However, most should still file a tax return because of the credits and deductions that may be available to them.”
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Lump-sum SSDI benefits. It can take two to four years to receive disability benefits, resulting in a lump-sum amount of back payments. Paying taxes on this amount in one year is a mistake and could be financially devastating. The IRS allows taxes on this lump-sum payment to be spread over previous tax years using the current-year tax return, with no need to file an amended return. However, the calculations are complex, and Gada recommends seeking tax assistance. Allsup provides a list of free tax help resources for people with disabilities on its Web site.
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Other benefit sources. Many people with disabilities rely on additional income that may be taxed. Generally, workers’ compensation benefits and compensatory damages for injuries are not considered taxable. The taxability of long-term disability (LTD) insurance benefits depends on how the premiums were paid. If you paid the premiums with after-tax dollars, the benefits are not included in your taxable income. If you paid LTD premiums with pre-tax dollars as part of a cafeteria plan, for example, or your employer paid your premiums, the benefits are taxable to you and must be included in your income.
2. Explore tax credits that provide a dollar-for-dollar tax reduction or a refund.
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Earned income tax credit (up to $5,657).The EITC is a refundable credit, meaning that when it is applied—any amount higher than a person’s tax bill can be received as a tax refund. To be eligible, a taxpayer or spouse had to be employed for a part of 2009, earned below $13,440 to $43,279—depending upon filing status and the number of children claimed—and had investment income of no more than $3,100.
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Credit for the disabled (up to $7,500). You are eligible for this credit if you receive taxable disability income from a former employer’s accident, health or pension plan—and have 2009 adjusted gross income under $17,500 for single filers, under $20,000 for joint filers with one spouse eligible for the credit, or under $25,000 for joint filers with both spouses eligible.
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Dependent care credit. If you pay someone to care for a dependent or spouse with physical or mental impairments, you may be able to take a credit of up to 35 percent of day care costs while you are working or looking for work.
Find more details on Allsup’s Web site under Tax Credits for Lower Income Taxpayers.
3. Use tax deductions to further lower tax costs.
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Some can increase standard tax deduction. Blind or visually impaired taxpayers may be entitled to a higher standard tax deduction.
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Medical deductions may apply. Taxpayers who itemize can deduct medical costs equaling more than 7.5 percent of their adjusted gross income. Deductible expenses include medical and dental costs, travel expenses for treatment, long-term care insurance, medical insurance premiums, and costs for certain equipment for those with visual, hearing and physical disabilities.
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Deduct the costs of seeking your SSDI benefits. If you hired a representative, such as Allsup, to help you get your SSDI benefits and you itemize, you can deduct the fee that you paid your representative when figuring out the taxability of a lump-sum SSDI payment you received.
ABOUT ALLSUP
Allsup is a nationwide provider of Social Security disability, Medicare and workers’ compensation services for individuals, employers and insurance carriers. Founded in 1984, Allsup employs more than 600 professionals who deliver specialized services supporting people with disabilities and seniors so they may lead lives that are as financially secure and as healthy as possible. The company is based in Belleville, Ill., near St. Louis. For more information, visit www.Allsup.com.
The information provided is not intended as a substitute for legal or other professional services. Legal or other expert assistance should be sought before making any decision that may affect your situation.