Social Security Disability

[Mlwilliams71]

My husband was just approved for Social Security Disability. Should I have taxes taken out monthly and what about the back pay?

[xmasbaby0]

You have not mentioned what other source(s) of income you have or how much tax (if any) is being withheld from that income.   If you have other taxable income then the SS can be taxable.   

TAX ON SOCIAL SECURITY

Up to 85% of your Social Security benefits can be taxable on your federal tax return.  There is no age limit for having to pay taxes on Social Security benefits if you have other sources of income along with the SS benefits.  When you have other income such as earnings from continuing to work, investment income, pensions, etc. up to 85% of your SS can be taxable. 

 What confuses people about this is that before you reach full retirement age, if you continue working while drawing SS, your benefits can be reduced if you earn over a certain limit. (For 2017 that limit was $16,920 —for 2018 it will be $17,040—for 2019 it will be $17,640— for 2020 it will be $18,240)  After full retirement age, no matter how much you continue to earn, your benefits are not reduced by your earnings; your employer will still have to withhold for Social Security and Medicare.

To see how much of your Social Security was taxable, look at lines 6a and 6b of your 2020 Form 1040

https://ttlc.intuit.com/questions/1899144-is-my-social-security-income-taxable

https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable

You need to file a federal return if half your Social Security plus your other income is $25,000 when filing single or head of household, or $32,000 when filing married filing jointly, $0 if you are filing married filing separately.

Some additional information:  There are 13 states that tax Social Security—Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.  These states offer varying degrees of income exemptions, but four mirror the federal tax schedule: MN, ND,VT, and WV

[rjs]

If your husband gets a lump sum payment of Social Security that is owed to him for past years, it will normally be treated as just more Social Security income this year. If you have enough other income to make his Social Security taxable, the amounts for this year and the past years will just be added together and all treated the same. That could leave you with a big tax bill, so you would want to have some tax withheld from the payments to cover it.

There is an alternative calculation for lump-sum Social Security payments, called the "lump-sum election," that can reduce the tax somewhat in some cases. It basically calculates how much of the past-year amounts would have been taxable if you had received them in the earlier years. Then that amount is used as the taxable amount this year. TurboTax can do the calculations for the lump-sum election and determine whether you benefit from it, but you need some figures from your tax returns for the earlier years. Whether the lump-sum election will save you some money depends on your other income this year and in the earlier years. It's not likely to make a dramatic difference unless your income was substantially lower in one or more of the earlier years. The only way to know for sure how much it would save you is to do the calculations. Tax software for 2021 is not available yet, but you could get a rough idea of how it would work out by entering the information into a dummy tax return in the CD/Download TurboTax software for 2020.

If you have other income, it can be fairly complicated to figure out how much the tax will be on the Social Security, especially if you use the lump-sum election, and to decide how you want to cover that tax with additional withholding or estimated tax payments. You might want to seek professional help, at least for this year. (Most tax professionals would have time available at this time of year.)

Whatever you do about withholding for 2021, you will probably want to change it for 2022 because you won't have the lump-sum payments for past years. So be sure to recalculate your tax and withholding at the beginning of next year.