Accountant for Disability income taxes?


Senior Member
Hey all,

So I was fortunate enough to win my ERISA disability case last year. I also won SSDI this year. For better or for worse this generated an interesting tax situation for me. Basically, both disability policies paid out in a lump sum for the back payments. From that point on, regular benefits are paid monthly. They both owed me about 2 years worth of benefits, so I got all of that money in one year. Because of this, my income for that year is now 2 times what it will be going forward. This pushes me into a much higher tax bracket for this year, and owing more taxes than if they would have just approved me from the start.

Also, the SSDI income will be in part paid back to the private insurer according to a clause in the contract that says SSDI income has to offset private income (which is common - but stupid). So really, the SSDI back payment isn't really income since it goes to the private insurer.

I am really confused on how this needs to be reported so that I don't get taxed double for the income since it came all in one year. I think there are laws regarding disability settlements, but I don't know if you are allowed to re-file the income over the past years that they should have been paying you, or if there is a special deduction or what.

Has anyone dealt with this before? Can anyone explain how this works with respect to taxes? Or maybe someone can recommend a good accountant that has experience with this? My usual accountant hasn't dealt with this issue and I'd feel more comfortable with someone who has.




Senior Member
I've been in this situation and there are several paths to calculating taxes. I just called my local H and R block, explained my situation, and they assigned me to one of the senior advisers (who trains the staff). Try going during the non-tax season when they have a bit more time. Ask them how much you will be charged -- usually they charge by the number of sheets/ complicated situations they have to deal with.

It turned out I didn't have to pay any taxes at all. And to boot, the guy who advised me did it for free since he said he didn't need to file anything! I had expected to pay; he spent an hour explaining my situation to me. (It must have been my good looks and charm. ;) ) He did ask me to tell my friends about H and R's services so I guess I'm doing my part here.


Senior Member
My accountant knew about this. So I guess some do and some don't.

Anyway, for the LTD, it depends on if it was taken from pre-tax or post-tax income. Mine was post-tax, so I didn't have to pay any more tax on it.

In general, if you're on disability and your income is below $25,000 (for a single probably) you don't have to pay any taxes. If it's above $25,000 you only have to pay taxes on 1/2 of it.

I'm not sure about the offset, because my LTD never paid me like they were supposed to, and I had to sue them and ended up with a settlement.

Anyway, I would recommend getting an accountant who knows about this stuff.


Senior Member
It used to be that if you were a contract worker and got paid in lump sums, you could spread the income out over a number of years, I think it was five. I know about this because it applies to writers who work for years on a book, then sell it and get an advance. I'm not sure if this is still current law, but it might be worth asking your tax adviser is about it.

Sometimes you can get free tax advice through community services - your local library might be a good place to ask.