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Stephen G.
Stephen G., Sr Financial Expert
Category: Finance
Satisfied Customers: 7197
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I'm writing to ask some tax advice regarding winning a

Customer Question

Good afternoon: I'm writing to ask some tax advice regarding winning a disability SSDI case, student loan discharge and federal income tax.
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: My husband works full time. Our joint return AGI is approx. 40,000. In Jan. 2017 i was notified that i won a 24,000 back pay (not deducting for lawyer fee) dating back to 2015. I have approx. 80,000 student loan debt with two different lenders. I will have to pay income taxes on my SSDI lump sum. I'm writing to ask, if due to the situation in owing alot of taxes, if it would be wise or not to pursue a student loan discharge or to wait a couple of years to do that (if at all).
JA: Is there anything else the Accountant should be aware of?
Customer: We will be opting to pay back taxes on the SSDI first before considering student loan discharges. Student loans interest provides for a deduction that we take each year. In short, we don't want to do everything at once due to the fact it would pose a huge tax liability that we are not in a position to pay IRS a lump sum
Submitted: 5 months ago.
Category: Finance
Expert:  Stephen G. replied 5 months ago.

Hello, my name is***** goal is to give you a complete & accurate answer. I am working on your request now & I will respond as soon as possible.

Expert:  Stephen G. replied 5 months ago.

Well, I can tell you one thing that may affect your thinking.

When you receive a lump-sum retroactive Social Security Disability payment, there is a specific provision in the tax law which allows you to make a special tax computation in order to avoid exactly what you are concerned about.

Generally, the way it works is that in order to determine the tax on the lump-sum payment, you determine the tax by figuring the tax on the lump-sum payment as if the Social Security payment was actually received in the years that it applies to. That generally works to reduce the income taxes on the retro-active payment.

Given that, there doesn't appear to be any reason to defer pursuing any student loan discharges that you may be able to obtain.

Steve G.

Customer: replied 5 months ago.
Thank you for your response. Given that we file jointly and our approx income may approach 48-50K (between SSDI and his job). What percent tax bracket does that put us in? We have no dependents or other deductions. How would the 1099 from student loan discharge be taxable at in order to arrive at a ball park figure that we would owe the IRS?
Expert:  Stephen G. replied 5 months ago.

100% of the Social Security Disability income is not taxed, so I would need to know how much of the 48K-50K you mentioned above represents SSDI. Since the 24K of prior year's disability payments won't affect your current year's tax bracket, if you've excluded that from the 48K-50K, that's fine, but I would need to know how much SSDI you did include in the 48K-50K estimate. Also, you would need to estimate how much loan forgiveness you may receive. All that said, I would expect that any such forgiveness would be taxed at 15%, up to approximately a total of $80,000. in taxable income.

Steve G.