SSDI Lump Sum Payment - Passing Through to LTD Carrier

When you are awarded Social Security Disability Income, the Social Security Administration sends you a single, lump-sum payment for any back-owed benefits. This check can be enormous... tens of thousands of dollars. And it has no tax taken out of it, which bites you in the bum at tax time.

In my case, it wasn't even my money to keep... I have private long-term-disability (LTD) income from a plan at work. The terms of the LTD policy are that they (UnumProvident) reduce their monthly payment to me by the amount of my monthly SSDI benefit. They had not been doing this while I was waiting to get approved for SSDI (I didn't think it would happen, and I needed the money right then). So I had to send 95% of the check amount (approximately) to them. 

The real rub: depending on how you pay for LTD insurance, the monthly benefit you receive from an LTD plan may be tax-free. And mine was. But I had to pay them the back-owed amount with taxable income (the SSDI). Which bites. 

I asked my CPA, and she asked several peers, and they all agreed. While it defies logic that you should have to reimburse the LTD company with after-tax or taxable money even though the money you receive from the LTD plan is tax-free, there is NOTHING you can do on your tax return about this. No deduction, no credit, nothing. It sucks!

Which just goes to show - if you can manage it, you need to save some of your LTD/SSDI money for a rainy day - tax issues like this, overpayments (Unum recently told me they overpaid me $1600 and needed it back ASAP), sudden termination of benefit payments, etc.

Comments

[Julie Brown]

I am going through exactly through the same thing. It is a horrible nightmare that I wish I would wake up from.
I owe the I.R.S. $5,000 on top of the $4,500 I would have received as a refund without this lump sum money. RIDICULOUS

[NS]

I just received a check--I have no idea how far back in goes in terms of back pay. I'm kinda worried about taxes...