When someone applies for disability benefits with the Social Security Administration, the approval process usually takes months. Payments accumulate in the meantime, and the SSA may disburse back payments in a lump sum. There are two sets of rules governing lump sum payments. One set of guidelines covers Supplemental Security Income and the other Social Security Disability Insurance.
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Two Sets of Rules
SSA benefits start the month after someone applies. Payments accrue until the claim is processed. The Disability Secrets website notes that lump sum back payments are limited to small amounts, usually under $2,000. Larger sums are divided into three payments. SSDI recipients aren't usually entitled to benefits until five months after they apply. However, a court or claims examiner may award benefits retroactively up to one year before an application is submitted when an individual's medical and work history shows the disability began earlier. All SSDI back payments are made as single lump sum disbursements.
Lump Sum Payments and Taxes
If a beneficiary has little or no outside income, benefits are not taxable. However, a portion may be taxable when there is enough total income. A large lump sum payment can push income for the year it is paid over the Internal Revenue Service threshold. To see if some of the lump sum payment may be subject to federal income tax, add 50 percent of the total disability benefits for the year to other income. As of 2015, if the total is more than $25,000 for a person filing as single or over $32,000 for a married couple filing a joint return, some of the benefits may be taxable.