Disability income threshold

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Disability income threshold

Monday June 2, 6:00 am ET
George Saenz

Dear Tax Talk,
I am a 58-year-old male who has been on dialysis since 1990. I currently receive over $1,600 a month in Social Security Disability Income, or SSDI. I have not filed income taxes, since I understand the income is nontaxable.

I got married in July 2006, and my wife, who works, filed joint taxes, not claiming my SSDI because of it being non-taxable income. Last year, 2007 and 2006, she filed the same and we got back a return. This year we received a letter from the IRS that we owe them the return plus penalties, because since I got married, the SSDI is now taxable. Is this true, and is there any way around it? It states on the tax form that I am disabled.
--Larry

Dear Larry,
Although you may have been lucky to find love, you also found the marriage penalty when it comes to your taxes.

As a single filer, your Social Security Disability Income was never taxed as you never exceeded the threshold for taxation. In the case of a single taxpayer, Social Security benefits are taxable only if half of the benefits plus other income exceed $25,000.

In the case of a married couple, you have to look at joint income, and the threshold is only $32,000, not anywhere near double the tax break afforded a single taxpayer. Although the tax code has been modified in recent years to eliminate marriage penalties, this provision has gone untouched.

Don't blame the IRS; the fault lies with Congress. Only Congress can change the tax laws, the IRS only enforces the way they're written.

A married taxpayer can file separately from his or her spouse, but the rules that pertain to a married couple filing separately are not the same as those of a single taxpayer. If you live with your spouse, the threshold is zero, which means one half of your SSDI is taxable.

You can try computing your 2007 tax return on a separate basis to see how your and your wife's taxes are affected by the separate status. However, you can't change your filing status for the year you received the notice. Once you choose to file a joint return, that choice is irrevocable.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

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