I received Social Security Disability Benefits during 2017 while participating in the SSA's "Ticket to Work" program. Since I was considered "gainfully employed" for part of the year (i.e., I earned over the limit for receiving benefits), I was subsequently (one year later) denied all benefits for those months. I had already paid Income Taxes on those benefits, which exceeded $3,000. If I pay those overpayments back to the SSA in tax year 2018 or 2019, how do I get made whole again by the IRS via the Claim of Right Repayment Credit for the income taxes I paid on Social Security Disability Income that I had to pay back?
Repayment over $3,000. If the amount you repaid was more than $3,000, you can recover the tax you originally paid using one of two methods. You can do it as a deduction on schedule A or a tax credit on line 73 of the 1040 form if when you included the income in a previous year, it appeared that you had an unrestricted right to it.
Figure your tax under both methods and compare the results. Use the method (deduction or credit) that results in less tax.
Method 1. Claiming a deduction for the repaid amount. You deduct it as a miscellaneous itemized deduction on Schedule A line 28.
This is the flow in
TurboTax:
Federal taxes > Deductions & credits > I'll choose what
I work on > Other deductions and credits > Other deductible
expense>Go thru to third screen> answer YES to "Did you have any
other deductions that are not subject to the 2% limitation?"
Enter the amount you repaid under, "Claim of Right Repayment (Only if
over $3,000).
Method 2. Figure your tax claiming a credit for the repaid amount. Follow these steps.
1. Figure your tax without deducting the repaid amount.
2. Refigure your tax from the earlier year without including the income that you had to repaid.
3. Subtract the tax calculated in (2) from the tax shown on your return for the earlier year. This is the credit.
This is the flow in TurboTax (This can only be done in the Forms mode of the Desktop version of TurboTax)
Go to FORMS (top right of
main screen) > Form 1040 > Scroll below line 72 to "Other Payments
and Credits Smart worksheet"
Please enter the credit o line D.
This credit should show up on Form 1040 line 73
I've included a link to the IRS website for your reference:
http://www.irs.gov/publications/p525/ar02.html#en_US_2014_publink1000229605
Repayment over $3,000. If the amount you repaid was more than $3,000, you can recover the tax you originally paid using one of two methods. You can do it as a deduction on schedule A or a tax credit on line 73 of the 1040 form if when you included the income in a previous year, it appeared that you had an unrestricted right to it.
Figure your tax under both methods and compare the results. Use the method (deduction or credit) that results in less tax.
Method 1. Claiming a deduction for the repaid amount. You deduct it as a miscellaneous itemized deduction on Schedule A line 28.
This is the flow in
TurboTax:
Federal taxes > Deductions & credits > I'll choose what
I work on > Other deductions and credits > Other deductible
expense>Go thru to third screen> answer YES to "Did you have any
other deductions that are not subject to the 2% limitation?"
Enter the amount you repaid under, "Claim of Right Repayment (Only if
over $3,000).
Method 2. Figure your tax claiming a credit for the repaid amount. Follow these steps.
1. Figure your tax without deducting the repaid amount.
2. Refigure your tax from the earlier year without including the income that you had to repaid.
3. Subtract the tax calculated in (2) from the tax shown on your return for the earlier year. This is the credit.
This is the flow in TurboTax (This can only be done in the Forms mode of the Desktop version of TurboTax)
Go to FORMS (top right of
main screen) > Form 1040 > Scroll below line 72 to "Other Payments
and Credits Smart worksheet"
Please enter the credit o line D.
This credit should show up on Form 1040 line 73
I've included a link to the IRS website for your reference:
http://www.irs.gov/publications/p525/ar02.html#en_US_2014_publink1000229605
Can a CPA provide an advice on this? Is Method I allowed? It seems to appear as so on pager 34 of pub 525.
Yes, the repayments are on page 34. This is a current IRS pub. Either method can be used in 2018, unlike what is stated above. I am a TT Sr Tax Advisor and an a EA (Enrolled Agent - same qualifications as a CPA)