SSDI and LTD

[cbcoakley1]

 My Hartford LTD policy is post tax benefits (meaning i currently dont pay tax on Hartford LTD payouts as i paid premiums with post tax dollars).  I was approved for SSDi in August 2019 and SSDi will be sending a 3 year lump sum in excess of 100,000....which i have to pay straight to Hartford.  Is there some deduction or credit available to me or am i stuck with an unexpected 20k+ tax bill (which i cant pay).  I'm really stressed out as i have to elect whether or not to with hold by the end of the week from the SSD (and go forward).  I dont know if i should try and with hold  (and risk the wrath of Hartford) or somehow pay the IRS for a benefit i did not really receive.  Thanks so much for any help.

[Anonymous]

Taxation of Social Security Disability Backpay
Large lump-sum payments of back payments of SSDI  can bump your income up for the year in which you receive them, which can cause you to pay a bigger chunk of your backpay in taxes than you should have to. To avoid losing part of your backpay this way, you are allowed to apply the SSDI benefits owed from a prior year to prior tax returns, lowering your income for the year you receive the lump sum.  You could amend your tax returns for two prior years to claim some of the income in those years instead of the current year. 

Social Security sends beneficiaries a form called the SSA-1099 each year they receive benefits. If you're receiving this form for the first time, it should state in Box 3 the exact amount of your lump sum that was accrued during previous years. Each year will be listed separately alongside the total amount paid for that year. Rather than requiring you to file amended returns for those years, the IRS allows you to handle it all on your current tax return, using prior years' income amounts. This method is discussed in IRS Publication 915.

It provides a way to calculate how much of your lump sum payment is taxable. 

the amended return and "915" methods may not produce the same results,   

[cbcoakley1]

Thanks so much for the response.  My worry is more the required payment to Hartford.  The back pay is a total pass through to the insurance company.  But the benefits i previously received from Hartford were after tax; while the SSI benefit will be taxed as some sort of income/gain (although i don't really have a gain here as the benefits went straight to Hartford).  The back pay is a large lump sum (>100k - spread over 3 years) and my wife has a decent job...which means we will be fully taxed on a gain that is not realized for me (i worry I'm stuck with paying the insurer AND the IRS).  Thoughts?   

[Anonymous]

look at it this way because this is how it is viewed from a tax standpoint

you got $x from hartford - non taxable

you got $y from social security - taxable

so at this point you have been compensated twice ( one taxable one not)

now you must give the social security $'s to Hartford (in effect Hartford gave you a net of $0) so you received no nontaxable income 

the Hartford (non taxable)  benefits have been replace by social security (taxable) benefits 

don't know if under your contract with Hartford, you can decline the Social Security benefits or if there are other possibilities.   consult a lawyer.    

if you still don't understand the tax consequences of getting taxable benefits for non taxable benefits ,  seek a pro who will tell you the same thing one way or another.