Repayments to long-term disability insurer

[AE-TurboTax]

in 2025 I repaid my LTD sum of $34,000. The LTD sent me a letter confirming the repayment in 2025 and they applied it from 6/6/24 to 8/6/25. The repayment is not part of their W-2 in 2025. How do I recoup the taxes for year 2024? How do I calculate my taxes for 2025 to account for the repayment in 2025? Does the LTD have to issue me a corrected W-2  reflecting the repayment?

thanks.

[DianeW777]

This will be handled on your 2025 tax return for a repayment of income previously taxed and repaid in a future year.  This is called a 'Claim of Right'. You must determine the amount actually taxed in 2024, then follow the steps and details below to report this activity.

The Claim of Right is explained more in the article below.  However I will add some information here about how to report on your tax return to determine if it applies to you and how you prefer to enter it on your tax return.

• What is a claim of right repayment?

Claim of Right

• If you had to repay an amount that you included in your income in an earlier year, because at the time you thought you had an unrestricted right to it, you may be able to reduce your income by the amount repaid in the current tax year if the amount you repaid is more than $3,000, or you may take a credit against your tax for the year repaid, whichever results in the least tax.

Taking the Income Reduction in TurboTax (most common)

1. Login to your TurboTax account or open your tax return.
2. Click on Deductions & Credits
3. Locate the section Other Deductions and Credits (you may first need to select on show all tax breaks if working online or I’ll choose what I work on if working in the installed desktop.)
4. Click Start (or Revisit) beside Other Deductible Expenses.
5. A number of questions will appear on the upcoming screens. You are looking for the one that reads Claim of right repayment over $3,000. Click yes when you see this screen. (Be sure to ignore the similar question, repayments of $3,000 or less.)
6. Enter the amount of the repayment in the box Claim of right repayment over $3,000 and click Continue.

Taking the Credit in TurboTax (Must use TurboTax Desktop)  How to switch from online TurboTax to the TurboTax software? 

There are two components to taking the credit in TurboTax. The first part entails determining the amount of the tax that was overpaid in the year the income was received. This requires using the TurboTax Desktop product (or another method) to determine what the tax liability would have been without the income. 

1. The credit can only be applied using the TurboTax Desktop product installed on a computer, in the Forms mode.
2. Switch to Forms mode by clicking on Forms icon in the program.
3. In the list of forms on the left click on 1040/1040RSR Wks above the Form 1040 itself.
4. Scroll down to Other Credits and Payments Smart Worksheet (near the bottom) and enter the amount that you have computed on Line D Claim of Right, IRC 1341 credit for repayments of prior year income.
5. Click on the Step-by-Step or Easy Step icon in the upper right corner to return to the interview mode and finish working on your tax return.

[AE-TurboTax]

Thanks for your detailed reply. This helps me in doing the federal part but what about South Carolina? How do I take this credit in in South Carolina where I live. Thanks

[DaveF1006]

If you took the federal deduction, it flows through to SC. If you took the federal credit, look for the "Subtractions from Income" section on your SC return to remove that $34,000 from your state taxable total.