Received Too Much from Social Security

[PaulP1010]

I worked a portion of 2019, and then retired.   I was informed by Social Security this year (2020), that they overpaid me last year in Social Security Benefits, and I must pay back approximately $9000. 

1.  Because both my wife and I worked last year, I had to pay taxes on our combined income, which included all of my Social Security earnings (including the $9000 that I was overpaid).   

2.  If I pay back the $9000 this year to Social Security, it would appear that my income for tax year 2019 was overstated by that amount.   

I am thinking that I am due a refund of some portion of the taxes I paid in 2019.   Do I have to re-state my 2019 taxes, or can I somehow deduct that $9000 from my 2020 tax year earnings?    

[VolvoGirl]

Do they want you to actually send it back or won't they just reduce your payments next year?

[PaulP1010]

Send it back.  

[rjs · Accepted solution]

You do not "restate" or amend your 2019 tax return. The adjustment for the repayment will be made in 2020. Your Form SSA-1099 for 2020 will show the amount that you repaid in box 4. That will be subtracted from your total 2020 benefits in box 3, and the resulting net amount will be shown in box 5. So you are compensated for the tax you paid in 2019 by not paying tax on $9,000 of your 2020 Social Security benefits.

If the amount that you repay is more than your total benefits for 2020, box 5 will be a negative amount. On your 2020 tax return you will be able to either claim an itemized deduction for that amount, or a credit that is calculated by recalculating your 2019 tax. You claim either the deduction or the credit, whichever makes your 2020 tax lower. But see correction below. The calculations in this situation are very complicated, and TurboTax will not do all the calculations for you. You can read about it in IRS Publication 915. In the 2019 edition look for "Repayment of benefits" on page 5 and "Repayments More Than Gross Benefits" on page 15.

If your SSA-1099 for 2020 has a positive amount in box 5, you will simply enter that reduced amount in TurboTax for 2020 and the tax adjustment is automatic. If your SSA-1099 for 2020 has a negative amount in box 5, and you need help handling it, post a new question here when you start working on your 2020 tax return.

[rjs]

CORRECTION TO MY PREVIOUS REPLY

The second paragraph of my previous reply applies only if the negative amount in SSA-1099 box 5 is greater than $3,000. I was focusing on the $9,000 figure, and forgot that the box 5 amount depends on your total benefits for the year (in box 3) and might not be more than $3,000 if your total benefits do not exceed the amount you repaid by more than $3,000. If it's $3,000 or less, under the tax reform law that was passed in 2017, you get no tax adjustment for the negative amount. That might seem unfair, but that's the law. However, in that situation you are not paying any tax on your 2020 Social Security benefits, so you still get some compensation for the repayment.