You may need to pay taxes on your Social Security Disability Insurance benefits. This can happen if you receive other income that places you above a certain threshold. You indicated that you won $7,000 in essentially prize money and therefore, you might have to file a return. The first step in deciding whether you need to file a return is to review the IRS guidance on when social security disability income may become taxable.
The IRS states that your Social Security Disability Insurance benefits may become taxable when one-half of your benefits, (in your case one-half of your social security disability benefits equals approximately $11,000) plus all other income, (such as your prize money of $7,000) exceeds an income threshold based on your tax filing status:
- Single, head of household, qualifying widow(er), and married filing separately taxpayers: $25,000
- Married filing jointly: $32,000
- Married filing separately but lived with your spouse during the tax year: $0
Based on the above information, if your filing status is single or married filing jointly, it does not appear that your social security disability income would be taxable. However, if your filing status was married filing separately, and you lived with your spouse during the tax year, then it appears that your social security disability income would be taxable.
Regarding the prize money of $7,000, your standard deduction for your filing status would likely negate any tax liability because the standard deductions are all greater than the $7,000 you won.
One way to confirm whether you have a tax liability for 2021 is to begin the process of preparing a return in TurboTax Online. When you enter your prize money amount, you might be prompted to upgrade to a different TurboTax product; however, you won't have to pay until the very end of the process. When you get to the end of preparing your return, and before you need to pay, you will know whether you owe any tax on your return. Moreover, you will also know whether you are entitled to a refund. At that point you can decide whether you wish to continue, pay, and e-file your return, or to close your account without paying and without filing.
Here is a link to a TurboTax article discussing when social security disability income is taxable.
Is Social Security Disability Income Taxable
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