It depends. The situation you describe can potentially all be resolved on your 2019 tax return, although it is likely going to be a complicated procedure. Exactly what must be done will depend on whether or not the disability retirement you referred to was taxable income or not. If it was taxable income, and you had to return the disability retirement income, as you state specifically in your question, then you have two separate (but related) tax events: a lump-sum Social Security distribution, as well as a "claim of right" repayment. If the amounts returned in the claim of right was greater than $3,000 for each year, it is possible to account for all of this on your 2019 return. In theory, this is what will happen:
- The SSDI income "replaces" the portion of disability income that is repaid. This is important because SS Income is taxed differently than retirement income. (In general, it is taxed more favorably).
- The "claim of right" reduces the taxability of the remaining income and generates additional tax "refund" from the two years in question, which is then claimed as a credit on the 2019 tax return as described above.
Both the lump-sum distribution worksheets as well as the claim of right calculations are independent of one another, and yet related and inter-dependent of one another, since they both contribute to the final common goal. It is a bit complicated, and TurboTax does not make the calculations for you, as Critter mentions in his comments. You can get CPA and Tax Expert service through TurboTax by purchasing TurboTax Live in 2019. Whether you choose this option or ask a professional to assist you, you want to make sure that it is prepared accurately.
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