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Untaxed Social Security Disability Benefits -- Include or Not?

megmnomegmno Posts: 415Registered User Member
edited September 2010 in Financial Aid & Scholarships
I was hoping one of the financial aid professionals on this forum could give me a definitive answer, because I'm confused about the wording of the instructions for FAFSA.

My DH has been approved for Social Security Disability payments (Parkinson's Disease). Social Security dispersed a lump sum of payments for a "lookback period" of about a year (I think) plus ongoing monthly benefit checks. My understanding is that because I am still earning decent income that some of DH's benefits will be subject to income taxes, and some of it won't.

My question regarding FAFSA is this: I did a little online searching and found that there is a line on the FAFSA that requires you to enter untaxed benefits "such as worker's compensation or disability benefits."
However the next line in the instructions says, "Don't include student aid, earned income credit, additional child tax credit, welfare payments, untaxed Social Security benefits". (I think this was question 94 of the 2009-10 FAFSA).

So I'm confused since these instructions seem to conflict with each other. Unless the disability benefits mentioned first are from private disability insurance???

Thanks for any insight you can give me. I'm trying to figure out how much of the lump sum should be reserved for taxes and possible reductions in fin aid next year.

ETA: Also, DS will be getting a lump sum check of about $1K. Would this also be reportable?
Post edited by megmno on
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Replies to: Untaxed Social Security Disability Benefits -- Include or Not?

  • sk8rmomsk8rmom Posts: 5,746Registered User Senior Member
    You can call the FAFSA help desk for a definitive explanation but I think the key word is "untaxed". SS benefits of any kind are not reportable for FAFSA if they remain untaxed. Once they exceed the nontaxable threshold, the excess becomes reportable.
  • Ms. LadybugMs. Ladybug Posts: 148Registered User Junior Member
    I understand that DH's untaxed SSD does not have to be reported on the FAFSA. I am in the process of using private college online financial aid calculators to get guesstimates of the affordability of the colleges on D's list. Should I include the untaxed SSD income on these calculators??? Do colleges that use the CSS methodology count the untaxed portion of Social Security Disability when determining aid? Boy, it sure would be nice if they didn't count it. The impact of a severe disability on a family's lifetime earning power is significant. (DH has been severely disabled and under-employed as a result his entire adult life. He is fortunate to have employment through affirmative action, and we are fortunate that he still qualifies for the SSD payment while employed. It's not easy to get!)
  • entomomentomom Posts: 23,658Registered User Senior Member
    The 2010/2011 Profile states, under Parents' Income & Benefits (PI-165A):
    Enter the untaxed SS benefits your parents received or expect to receive for all family members except you, the student, in 2009.
  • Ms. LadybugMs. Ladybug Posts: 148Registered User Junior Member
    Thanks for clarifying, Entomom.
  • baker101460baker101460 Posts: 176Registered User Junior Member
    sk8rmom is quite correct megmno


    social security benefits, whether its ssi, ssdi, or retirement, or survivors benefits are untaxed income and as such, are excluded from efc calculations--in short, they should be excluded from the fafsa...
  • azcpamomazcpamom Posts: 278Registered User Junior Member
    Any ideas how a state government pension is counted?
  • entomomentomom Posts: 23,658Registered User Senior Member
    Pensions are counted as income for both FAFSA and Profile.
  • azcpamomazcpamom Posts: 278Registered User Junior Member
    Thanks, Entomom. I thought that was the case, but wanted some assurance from you guys who know about these matters.
  • entomomentomom Posts: 23,658Registered User Senior Member
    You're welcome! I receive both State and Federal pensions as well as untaxed SS benefits, so I'm familiar with all of these. The colleges pretty much know all of the possible sources of incoming $$ :(; FAFSA just made the change to NOT count untaxed SS a couple of years ago.
  • bthomp1bthomp1 Posts: 1,506Registered User Senior Member
    "social security benefits, whether its ssi, ssdi, or retirement, or survivors benefits are untaxed income and as such, are excluded from efc calculations--in short, they should be excluded from the fafsa..."

    I think this statement is wrong. For a lot of people, aren't taxable portions (up to 85% for many people whose spouse makes over $32,000 or so) of ssdi and social security retirement benefits included as income on the FAFSA? Aren't the taxable portion of these benefits included as income on the FAFSA?
  • sk8rmomsk8rmom Posts: 5,746Registered User Senior Member
    bthomp, you're right, if the benefits are taxable, they're also reportable for FAFSA.
  • FlMathMomFlMathMom Posts: 1,307Registered User Senior Member
    megmno-Can't you file an amended tax return for prior year to include lump sum for that year thus decreasing income for this year?
  • bthomp1bthomp1 Posts: 1,506Registered User Senior Member
    You can divide the lump to apply to previous years' taxes (affecting the tax owed for year(s) back to the date when you were judged to have been officially disabled) in order to reduce the total tax burden of the lump sum; however, the income still counts as having been received in the year that you received it. The lump sum election method can decrease the overall tax owed, but the lump sum income still is applied to FAFSA for the tax year that you received the lump sum.
    http://www.irs.gov/pub/irs-pdf/p915.pdf
  • bthomp1bthomp1 Posts: 1,506Registered User Senior Member
    Disregard what I said in #14. On second thought, I don't know the answer. Hopefully, somebody else can answer that.
  • specialmomspecialmom Posts: 7Registered User New Member
    I receive SSDI and will not be returning to work for poor health reasons. I also have a son who is handicapped on the autism spectrum. I am trying to figure out what is untaxed income on ssdi. I get a decent check from years in the workforce, my spouses untaxed income is about $37K

    Any answers to this financial question would be helpful. It's so confusing. If the threshold is $32K of your spouses income does FAFSO not include my SSDI income for the year and just tax $5,000 of SSDI.
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