deductions

[kingdavid715]

I had to repay to my long term disability carrier the amount that social security finally paid me. The ltd company says I cant adjust my taxes until the close of 2021 even though I repaid in 2020. Is that accurate?

[gloriah5200]

You can deduct the repayment amount on the return for the year you repaid it.  Maybe they were referring to the fact that the tax return for 2020 is actually completed in 2021.

Yes, the insurance company was correct.  The information on your options and how to make the entry is provided here and it is called Claim of Right.

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 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.  

1. Credit: If you choose to use the credit instead of the income reduction, then you would have to calculate that manually.
   • The tax return would have to be completed in the TurboTax Desktop version if the credit is used.  For assistance with this, see: How to switch from online TurboTax to the TurboTax software? and TurboTax Prior Year Products.
     1. Figure your tax for 2020 without deducting the repaid amount.
     2. Refigure your tax from the earlier year (the year you originally reported the income) without including in income the amount you repaid in 2020.
     3. Subtract the tax in (2) from the tax shown on your return for the earlier year. This is the credit.
     4. Subtract the answer in (3) from the tax for 2020 figured without the deduction (step 1)
2. Income Reduction Method (most common): If you choose to use the income reduction method you can use the TurboTax Online or TurboTax Desktop.

Follow the steps below for the method you have selected.

Taking the Credit in TurboTax

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 actually 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.

Taking the Income Reduction in TurboTax

1. Login to your TurboTax account or open your tax return.
2. Click on Federal Taxes and then Deductions & Credits.
3. Locate the section Other Deductions and Credits (you may first need to click on show all tax breaks if working online or I’ll choose what I work on if working in the installed desktop version.)
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.

Please refer to the following link for information:

Repayment under Claim of Right

[Edited 04/05/2021|5:24 pm pst]

[kingdavid715]

the insurance company is claiming they cant even get me the overpayment info until the end of 2021. then I can write off my overpayment on the 2021 return. even though I repaid it in 2020.

[AmyC]

No, that is incorrect. However, if the payment was less than $3,000, it will not be deductible so it won't matter.

If the payment was more than $3,000, you will want to amend your 2020 return since it was repaid in 2020. You don't have paperwork showing the amount you repaid I guess.

Eventually, the company will send you a letter stating the amount of repayment. If you get it before we shut down filing for the season, you may be able to efile it. Otherwise, you will have to mail it. 

[ee-ea]

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