Social Security Income--there are 3 types (Basic certified can do)

Income received from the Social Security Administration for Retirement and Disability (SSDI) is reported on an SSA-1099.  Many people believe it to not be taxable. This is not necessarily true.  Social Security Income can be taxable IF their income crosses a certain threshold. How much is taxable depends on the total income. Up to 85% of their Social Security benefits may be subject to income tax.

Those whose filing status is Married Filing Separately and who lived with their spouse in the tax year will find 85% of their Social Security income subject to income tax.

If Client doesn't have their SSA-1099. Click here for options.

Supplemental Income (SSI) is not taxable, does not get reported on a tax return and there is no tax form issued for it.
Lump Sum Disability Payments Received

***Be advised that Lump sum Social Security Disability payments can have a very negative affect on a tax return if there is Marketplace Health Insurance that needs to be reported.
  • Using the Lump Sum Worksheet can reduce Income Tax obligation for the year in which it was received. (DO NOT AMEND PRIOR YEAR RETURNS--SEE INSTRUCTIONS in PUB 4012 Section D)
  • Marketplace Health Insurance is based off of total income (MAGI) for the year--regardless if it is for prior year. Many are shocked (horrified) by the effect a lumpsum payment causes on their tax return.
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Click image for PDF and this link for PowerPoint Presentation
​Attorney Fees-- Many people are charged attorney fees when they receive their lump sum disability. They ask if they can claim it (deduct it) on their taxes. Well... maybe. Click image to learn more and how.
Marketplace Health Insurance & Lump Sum Payments

Marketplace is subsidized health insurance based off of the total income on the tax return (regardless if it is taxable or not).

Think about the implications of this.. click the image to learn more
Just for Fun! Because I have absolutely nothing to do (said with extreme sarcasm) my mind starts asking questions that I have to answer before I can move on...
If someone's ONLY income is Social Security-- we know by itself generally it isn't taxable. BUT at what amount WOULD it be taxable if they had NO other income.. inquiring minds wanted to know: (used over 65 as age of taxpayer)
  • Single filing status: $94,363 would generate a $1 in tax liability. (Why did I want to know that? Who knows)
  • Married Filing Separately-- did NOT live with spouse-- $93,539 generates $1 tax liability
  • Married Filing Separately and DID LIVE WITH SPOUSE-- $36,129 generates $1 in taxable liability
So now I know : )>   (did this with 2022 or 2023 software)
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Please note: I, Mary Meador, AM NOT a certified accountant or tax law expert. I volunteer with VITA providing free tax preparation for individuals and families whose income is less than $66,000 a year. We deal with simple returns at our sites.  I cannot guarantee the accuracy of all the information on this site as tax laws change and I may not have a clear understanding of complicated issues. I am trying to provide basic tax preparation information for our volunteers to get started--remember Publication 4012 is your go-to resource for questions, as well as irs.gov and Publication 17.  I hope you find this information useful and easy to understand. Thanks for being a VITA/TCE volunteer!
**I am human, so if you find a mistake, please let me know so I can fix it--we are all in this together**
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