I have been MIA from this blog for weeks now, because I am wrestling with my 2008 taxes. In 2008, the Social Security Administration approved me for SSDI and sent me a single check for back-owed payments for 2006, 2007, and the first part of 2008.
Now I am trying to avoid the potential tax nightmare of having all of this income apply to my 2008 return (it's not my fault they didn't pay me my 2006 benefits in 2006 and my 2007 benefits in 2007). The IRS publication 915, Social Security and Equivalent Railroad Benefits, discusses a "lump sum election" option that somehow allows you to attribute lump sum amounts for prior years to those prior years, without having to go back and amend your older tax returns. I tried reading it, tried getting TurboTax to deal with it for me, and wound up cross-eyed and more confused than ever.
So for the first time, I've had to find a tax professional. And the ones I've spoken with thus far aren't any more familiar with the lump sum election than I am! It's unnerving. It probably does not help that I have waited so late into the tax season to try and find help. Lots of CPAs and tax preparers I've contacted are too busy to take me as a new client for this year. I suspect that somewhere in that group of people may lie a handful of pros who have done lump sum elections before.
So, my one piece of crucial advice to anyone who has just been approved for SSDI - go to a tax professional immediately! Determine right away whether that lump sum payment of back-owed benefits is going to wreck your taxes for that year... and take steps to counteract it. (If SSDI is your only real source of income, you should not have any problems... it's people who have working spouses or are working part-time themselves who may wind up owing taxes on those SSDI benefits.) The Social Security Administration can do things for you like voluntarily withhold taxes from future SSDI checks and/or add additional withholding to future SSDI checks to make up for any possible tax liability you may have from a lump sum payment for prior years.
I wish I had known that then! Argh.
Related Reading:
Individuals with Disabilities Face Added Complexities at Tax Time, Business Wire, Feb. 20, 2008, as reprinted on findarticles.com.
