Reimbursed for Support

[jeepls2003]

I have a friend who lived with me for 6 yrs who I financially supported in much the same way a parent does for their child; cost of living, buying clothes, basic needs, pay for things to try to get ahead, etc. After the friend moved out years later he wants to reimburse me back and we agreed to $30,000. He plans to pay me in 3 or 4 installments. He's been approved for SSI. SSI has confirmed he will be getting a certain amount in back pay disbursed in 4 checks so he'll be giving me about $7k-10k in 3 to 4 consecutive months. I was not able to claim him on my taxes during those 6 years because of 2 reasons; first, I did not know I could claim him then second, when I found out I could claim him I tried to do so but someone else had already claimed him on their taxes. 

As of current there is no formal or notarized agreement for him to pay me back. Do I need to file tax on this? Whether yes or no do I need need to have something formalized or notarized showing an agreement between the he and I? I would hate to find out that I would have to file and pay taxes on the very money I supported someone who, in return, is reimbursing me back. 

[AJ]

OK.  This one is a bit unusual, so I don't want to tell you what to do.  I will observe that it appears that there have never been any formal business agreements or loans between anyone.  Thus, it appears that you gave a gift to your friend when you supported him.  Assuming that your friend is under no obligation to you, I don't know of any law that prevents your friend from giving you a gift.  The 2018 gift limit is $15,000.  The receiver of a gift does not pay taxes on gifts. The giver should file forms if the gift limit is exceeded during the tax year. The gift can be given with no paper work if below the gift limit.  Next year, he can give a gift again. So that's the technical observation.  I can't help but to also observe that paying the high sum of money out of SSI does not seem reasonable for someone who is getting government support due to having to live on limited means.  Please think this through and be fair.

[Carl]

Basically what you did for your friend in the past was a gift. Now, they are choosing to reciprocate with what the IRS considers the same exact thing - a gift.

Gifts are not taxable or reportable on any tax return, ever. However, if the gift given in any one tax year exceeds $15K then the giver of the gift is required to file IRS Form 709 Gift Tax Return. The recipient of said gift is not required to file or report anything, to anyone.

So the trick here is for your friend to not give you more than $14,000 in any one tax year. This should be simple to work out since they want to give you this gift in installments.

Now the 709-Gift Tax Return is actually a very misleading name for that form. If your friend gives you more than $14,000 in a tax year, they the giver has to file that form with the IRS. However, that form has nothing what-so-ever to do with taxes and it will not result in any taxes being paid on the money by anyone. Here's the reason the form is required if the gift is more than $14K in any one tax year.

When a person dies and leaves their estate (property, money, cars, etc) to their heirs, any one heir that receives more than $5.2M (five million two hundred thousand dollars) as an inheritance, has to pay "Death tax" on the amount over $5.2M. Gifts given in any one tax year that are valued at more than $14K count against that $5.2M inheritance ceiling. So the only reason the giver of the gift has to file the 709 - Gift Tax Return, is to report the amount given so that amount is subtracted from the $5.2M ceiling that neither giver or recipient have to report on any tax return.

For the IRS Form 709 -  Gift Tax Return, TurboTax does not provide this form. It's the responsibility of the gift giver to download the form at https://www.irs.gov/pub/irs-pdf/f709.pdf then fill it out, sign it, and mail it to the IRS at the address on the form. But again, no taxes are paid at that time, or at any time ever, by either the giver or the recipient of the gift.