Taxpayer asks:
What a great service. Hope I can explain this good enough. I have been disabled for 3 years, have received disability income from a private insurance company. This was not taxable because I paid the premiums. Was approved for disability end of 2008 and got a lump sum check. Had to then send the total proceeds to Hartford Ins. since they had paid me more than SS will. Now, do I have to pay tax on the money received from SS?
Taxgirl says:
Good news! You may get a break on this one.
Hopefully, your Form SSA-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. Your net benefits should be reported to you as a negative number in box 5.
If you itemize, you’re entitled to a deduction for the difference (box 5). If that amount is $3,000 or less, it’s considered a miscellaneous deduction subject to the 2% AGI limit. You’ll take that deduction at Schedule A, line 28.
If the amount is more than $3,000, you may be able to claim a tax credit instead. The hoops you have to jump through are a little ridiculous (did I say/write that out loud?) – you can find the formula in IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. There are a lot of calculations involved; it requires you to recalculate tax from prior years to figure the credit. It’s tricky, so I highly recommend getting some assistance from a tax pro – you don’t want to pay more than you need to!
(Note: Under the TCJA, you can no longer claim any miscellaneous itemized deductions that are subject to the 2% of adjusted gross income limitation, for the years 2018-2025.)
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
I’ve been getting Social Security since I was 62 and am now 66 and 8 months. I have received about $78,000. I read an article that said I could repay all of my payments, reapply and get a payment based on my current age (about $2,100/mo). I currently get $1,554/month. If I repay, can I claim the payment as a deduction to recoup federal taxes I’ve paid and what will my new monthly payment be?
Honestly, I’ve never heard of this – but it sounds like a Social Security matter. I’d recommend contacting them (www.ssa.gov) or a Social Security lawyer.
after paying for a policy from Hartford and then they made me apply for SS. I was approved for the SS they sent me and my kids a retro payment. I was told by Hartford that I would need to send them all of the benefit for both me and my children. Is this possible that they can do this? What are my rights? Is it against the law for them to do this? What ever you can tell me would be a great help.
Nancy, this is more of a contractual issue with Hartford than a tax matter. I’d take a copy of your contract to an attorney and have them take a peek.
I found a artical that they are going to try and barr the disability places from getting back the money they paid people. They do not think it is right if you pay for a policy you should be able to collect from it. But the only reason they did this with me is so they would not have to pay me my full benefits any more. I think that it they do not want to pay people for these policys they should buy a fruit cart and sell it on the side of the road. I do not think it is right for them to take a person SS that they have worked for all their lives. It is utter greed. I worked two full time jobs I should be able to get what I have earned. And other people should not have to be subject to this nonsence. But the courts are taking a second look at this now. And they are saying some thing is not right with this picture. Hello!? You think? Thanks for writing me. Nancy
Kelly:
I asked about the repayment of Social Security. My tax man says, yes it becomes a deduction on the current years tax return. It worked especially well this year (2009) as I had transfered from my IRA four stocks, each to individual ROTH IRA’s in January of 2009. I knew if I kept them in the ROTH accounts the transfers would be treated as taxable income. The total was about $67,000. I’ve done this for several years. If the stock didn’t go up more than 25% by yearend I would recharacterize them to save the taxes. If more than 25%, the growth which is not taxable would pay for the taxes. Last year they all were up over 25%, in fact had grown to about $110,000 so I kept them all. The repayment of Social Security tax deduction more than offset the amount transfered to the ROTH accounts. It worked well last year. I have already transfered four more stocks this year to see what will happen. Worked for me well last year. JE Johnson Lincoln, Ne
I was disabled from my job in 2011 but was denied disability from social security so i drew disability from my work. The end of 2012 i was finally approved social security disability and was granted back pay for 2011 and 2012′ but all the back pay had to be paid back to reimburse my disability from work. Do i have to pay taxes on all the back pay money even though i had to pay it back to my employee.