This Article highlights the fact that the taxability of Social Security disability benefits paid in a lump sum causes problems for many taxpayers -- and the writer was apparently unaware of the lump sum election or of the fact that long term disability benefits are actually taxable for most people since they come as an employee benefit.
If her spouse had substantial earned income from 2007 on, or either of them had a lot of unearned income in that period, that lump-sum election may not have helped as they could have been at the same marginal tax rate for the earlier years.
ReplyDeleteBut you and the author are correct that many tax preparers, including some CPA's, are unaware of the lump-sum election rule. Some years back, my wife did taxes for H.& R. Block. She came home from her class one evening and announced that they had covered everything about taxation of Social Security benefits. I asked her about the lump-sum election and drew a blank look. Next evening, she asked the instructor and he explained the rule, but said it never came up so they didn't cover it in class.