Social Security Repayment

[walkervr53]

I started taking social security when I was 62. Around $1800/mo.  I am now 71 and it has climbed to over $2000/mo. Had I waited until 70 to take my benefits, obviously it would have been significantly higher.  I am thinking about repaying SS the money that paid me up to age 70 and getting them to adjust check to the age 70 max rate. That means I will have to refund SS maybe $175,000 for those 8 years.  But I paid a lot of imcome tax on that money.  How in the world do I recoup all this? I can only do amended taxes for the past 5 years, but if I am understanding correctly I can't amend for SS repayment. Do I minus out my entire payment for each until I finally take the entire $175,000 reduction?

[rjs]

This answer is based on the current tax law for 2024. Some of the relevant provisions will expire after 2025. So the situation could change beginning in 2026, depending on what, if anything, the new Congress does about the expiring provisions.

Your understanding is correct. You do not amend your tax returns for the years that you reported the Social Security benefits as income. You make the tax adjustment for the repayment in the year (or years) that you repay it.

Your SSA-1099 form will show the amount that you repaid in box 4. Any benefits that you received in the same year will be in box 3. The resulting net amount, box 3 minus box 4, will be shown in box 5. So if the amount that you repaid is less than the benefits you received in the same year, you are compensated for the repayment by not paying tax on the full amount of benefits that you received that year.

If the amount that you repaid is more than the benefits you received in the same year, box 5 will be a negative amount. That means that you will not pay any tax on your Social Security benefits, which at least partially makes up for the tax that you paid in the earlier years. If the negative amount in box 5 is $3,000 or less, under the tax reform law that was passed in 2017, you get no additional tax adjustment for the repayment. If the negative amount in box 5 is more than $3,000, on your tax return for the year of the repayment you will be able to claim either an itemized deduction for that amount, or a refundable credit that is determined by a rather complex recalculation of your tax returns for the years that you received the benefits that you repaid. You claim either the deduction or the credit, whichever makes your tax lower for the year of the repayment. The deduction is an itemized deduction. You will not get any benefit from it unless your total itemized deductions are more than your standard deduction. 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. See "Repayments More Than Gross Benefits" on page 15.

Entering the deduction or credit in TurboTax is a bit involved, and the credit cannot be entered in TurboTax Online. It can only be entered in the CD/Download TurboTax software using forms mode. If you go ahead with this, post a new question here when you are working on your 2024 tax return and we will give you detailed instructions for making the entries. The 2024 software is not available yet, and the details might change.

Repaying benefits that you received over multiple years, and especially going back 7 or 8 years, is going to get complicated. You might want to seek local professional help.

[xmasbaby0]

You should also consider seeking advice from a financial planner.   You say you will repay $175,000 to SS---what will the source of that substantial amount be?   Will you be taking it from an IRA or 401k and paying tax on it?  Have you given careful consideration to the difference in the benefit you will get from SS for the later retirement age vs. the repayment of $175,000----and--sorry to be blunt---but you may need help to figure out how many years of that higher benefit you need to live and collect SS in order to come out ahead.   

[sb2606]

Just happened upon this thread. 

I repaid SSA back $7,914 this year that was reported and taxed in 2023. I'm trying to enter this as a deduction. I've switched from Turbotax online to the desktop version because of this thread but am not looking for how to enter the amount. 

Can you provide details on where to enter? 

[rjs]

@sb2606 

You didn't say whether you also received any Social Security benefits in 2024. What are the exact amounts in boxes 3, 4, and 5 of your SSA-1099 for 2024?

[sb2606]

I didn't receive anything in 2024

Box 3 Benefits Paid in 2024: none

Box4 Benefits Repaid to SSA in 2024: $7,914

Box 5 Net Benefits for 2024: ($7,914) 

[rjs]

@sb2606 

Since you repaid more than $3,000, you have a choice of two ways to report the repayment on your 2024 tax return. You can claim either an itemized deduction for the amount you repaid, or a credit that is determined by a recalculation of your 2023 tax return. You can choose whichever makes your 2024 tax lower. Either method has potential drawbacks, which I will outline below. For more details about the two options, see "Repayment of benefits received in an earlier year" on page 15 of IRS Publication 915. Publication 915 refers to the itemized deduction as "Method 1" and the credit as "Method 2."

Here's how to enter the itemized deduction in TurboTax.

• Go to Federal Taxes > Deductions & Credits > Other Deductions and Credits > Other Deductible Expenses.
• The first screen asks if you paid any generation-skipping taxes. If you didn't, click No.
• The next screen asks if you had any "less common expenses," one of which is repayments of $3,000 or less. You repaid more than $3,000, so click No.
• The next screen asks if you have certain other expenses. Click Yes.
• On the next screen, enter the total amount that you repaid in the second box, labeled "Claim of right repayment over $3,000." Then click Continue.
• The deduction will appear on Schedule A line 16.

To claim the credit, there are two possible complications. First, TurboTax will not calculate the amount of the credit for you. You have to do it yourself, as described in Publication 915. It's not hard to do if you have the desktop TurboTax software for 2023 and the .tax2023 data file for your 2023 tax return. Second, if the credit works out better, there is no way to enter the credit in TurboTax Online because it's not covered in the TurboTax interview. The credit can only be entered in forms mode in the desktop TurboTax software. But you said you already switched to the desktop software, so this would not be a problem for you.

Here's how to enter the credit in the desktop TurboTax software. In forms mode, open the "Form 1040 or Form 1040-SR Worksheet." Scroll down to the "Other Credits and Payments Smart Worksheet" near the bottom. Enter the credit that you calculated on line D of the "Other Credits and Payments Smart Worksheet." The repayment will then appear on Schedule 3 line 13b, "Credit for repayment of amounts included in income from earlier years."

The deduction is relatively easy to enter in the TurboTax interview. But it's an itemized deduction. You will not get any benefit from it unless your total itemized deductions are more than your standard deduction. And you will not get the full benefit of the deduction unless your other itemized deductions, without the repaid Social Security, are more than your standard deduction. But if you are already itemizing deductions for 2024, the itemized deduction is a good choice. In that case, if your total income is roughly the same in both years, there is not likely to be much difference between the deduction and the credit. You could just claim the deduction if you don't want to deal with the complications of claiming the credit.

[sb2606]

When I follow the steps of the deduction, it then populates an Unemployment Form 1099-G on my income summary or -$7,914. Does it matter that this wasn't unemployment?

[rjs]

No, it doesn't matter. It's just a quirk of the TurboTax interview. It is not shown as unemployment on the actual forms. Ignore it.

[sb2606]

I assume that I still enter the SSA-1099 as well, even with it already in the unemployment section? 

[rjs]

@sb2606  You don't have to enter the SSA-1099. If you do enter it, TurboTax just ignores the negative amount in box 5, so there's no point in entering it.

[sb2606]

Thank you for your help!

[mley714]

I have a slightly different scenario that I need your assistance.  

In July 2023, I took early social security retirement benefits.  In March 2024 I cancelled my social security retirement benefits and repay everything back to social security.  I received SSA-1099 for 2023 and 2024. The social security benefits I received were reported and taxed in my 2023 tax filing.  How do I report in my 2024 tax filings that all social security benefits were repaid in March 2024?  How do I amend my 2023 tax (filed) about this adjustment? .  I am using the TurboTax Premier Desktop version 2024.  Any help is greatly appreciated!

My 2024 SSA-1099 form: 

Box 3: $5,382

Box 4: None

Box 5: $5,382

My 2023 SSA-1099 form: 

Box 3: $13,035

Box 4: None

Boc 5: $13,035

[rjs]

@mley714 

See my reply to the new separate question that you posted about repaid Social Security benefits. Please keep all of the discussion of your question in one place. When information is scattered in multiple threads it's confusing and hard to follow, and hard to see the whole picture. You are already causing confusion by posting partial information in two different places. If you have further questions about repaid Social Security benefits, please continue the discussion in the new thread that you started. Do not add any more posts to this thread.