DEAR CARRIE: Two years ago my nephew received a $20,000 Social Security disability benefit after his father, who had just been approved for the money, passed away unexpectedly. The money was retroactive to when his father started the application process. That’s the good news. The bad news is that my nephew has just received a notice from the IRS that he owes $4,000 in taxes. He had been advised that this money was not taxable. How should he handle this?
— A Taxing Situation
DEAR A TAXING: Your nephew found out the hard way that in some cases that benefit is indeed taxable.
Here is one of the key points related to your nephew’s situation from the IRS’s website:
“The amount of income tax that your child must pay on that part of the benefits that belongs to your child depends on the child’s total amount of income and benefits for the taxable year.”
Here are some specifics: “To find out whether any of the child’s benefits may be taxable, compare the base amount for the child’s filing status with the total of one-half of the child’s benefits, plus all of the child’s other income, including tax-exempt interest; if the child is single, the base amount for the child’s filing status is $25,000.
“If the total of one half of the child’s Social Security benefits and all the child’s other income is greater than the base amount . . . part of the child’s Social Security benefits may be taxable,” the IRS website says.
If your nephew is married and files a joint return, he and his spouse must combine their incomes and both their benefits, if his spouse also receives any, to determine if their combined benefits are taxable.
“Even if your spouse did not receive any benefits you must add your spouse’s income to yours to figure whether any of your benefits are taxable,” the site says.
Go to bit.ly/litaxes to download a work sheet to determine if your benefits are taxable. That provides more information on the base amount and the other rules for married individuals when Social Security benefits are involved.
DEAR CARRIE: If I quit my job to move to another state, can I collect unemployment benefits while I look for another job? I called that state and it said I would have to file in the state where I was working, which would be New York. I’ve tried to call the unemployment office several times and have been unable to get in touch with anyone. I’ve also gone to the state website and come up empty. Any suggestions?
— Possible Unemployed Transplant
DEAR POSSIBLE: Generally if you quit your job you don’t qualify for unemployment benefits. Those benefits are for people who lose a job through no fault of their own. But as with anything, there are exceptions. For example, if you are a “trailing spouse” — that is, you quit your job because your wife or husband was transferred to another state and you followed — you may be eligible for benefits.
If you do qualify for benefits and you worked in New York but are relocating to another state, then you would have to file in New York. Here is what the state Labor Department’s website says:
“If you currently live in another state, but all of your work in the past 18 months was in New York State, you must file your claim with New York State.”
And of course you will have to provide proof that you are ready, willing and able to work, including actively looking for a job.
The state encourages unemployed people to file for benefits online. Go to bit.ly/libenes for more information.
Go to bit.ly/litaxes to download copy of worksheet to determine if your benefits are taxable.