Lump-sum payment is taxing me...

August 11, 2011 7:49 AM

[Tax Filter] Tax on a lump-sum disability payment that covers a period of time before this year.

If a lump-sum disability payment was made this week to cover the period of being unable to work from February 2010 to present, what exactly is taxed?

I have read slightly differing opinions on this kind of thing. As far as I understand, the percentage of the lump-sum payment that covers February 2010 to December 2010 is NOT taxed, as it is considered income for that year, and you do not go back to amend your return for this. I believe that the percentage of the payment that covers January 2011 to August 2011 will need to be reported come tax time next year, and WILL BE taxed.

Have I got this right?

posted by kuanes to Work & Money (2 answers total)

Do you pay for your disability insurance ? If so, did you pay with pre-tax dollars or post-tax dollars ?

You should (or already-have) received the correct paperwork for it - I forget if it is W-2, or 1099. (Depends on who's issuing the check. Mine came from my employer, so it was W-2, whereas the Mrs came from 3rd party insurance and was 1099, I think). You MAY want to look into paying estimated taxes on the check you received NOW, while you still have the money.

Heck, see what the IRS has to say. Disability insurance.
posted by k5.user at 8:06 AM on August 11, 2011

Response by poster: This is SSI disability (sorry, should have mentioned that). I've tried reading the IRS stuff, but it starts to do my head in...
posted by kuanes at 8:24 AM on August 11, 2011