Retro Social Security Disability Payments

[terimac4]

Good afternoon,

My husband received social security disability after a 4-year struggle, and it includes past benefits back through 2021. I understand that I can claim the entire amount this year or list each year on the worksheet. I also understand I should not file amended returns for the past years, but my concern is if I list them separately, I may trigger an audit of my past taxes, or it will affect what I have to pay for those years as I am assuming the income will be taxed. Advice? The amount is around $125K, so it puts us in a higher bracket since I also have a good income.

Also, the lawyer's fees were paid directly from the amount. Do I still claim the amount in Box 3  before attorneys and then list the attorney fee as a deduction?

[KeshaH · Accepted solution]

The income is all taxable on your 2024 return because it was received in 2024. Receiving the benefits in 2024 and reporting all on your 2024 return won't impact your prior year returns. Instead, the income you earned in the prior years will be used to determine how much of the benefits are included on your return in 2024. 

You should list the amount in Box 5 which should be net of any deductible attorney's fees. 

[terimac4]

Thank you-so they will adjust the 24 amount based on prior years?

Also, the Box 5 includes the attorney's fees

[KeshaH]

Correct. If you choose the lump sum election, you'll need to provide income for each of the years that the benefits were paid for as well as how much of the total benefits was attributed to each year. TurboTax will calculate how much of each year's benefits are taxable and add them all to your 2024 return.