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.