Social Security Disability Repayments to Employer

[childclan]

I received a large lump sum award in 2021 for Social Security Disability.  The award included amounts for 2019, 2020 and 2021, which I have allotted to the various years in TurboTax.  I had to repay a large portion of the award to my employer because they had paid me disability benefits during that same time.  In TurboTax I can find a provision for repayments of benefits to Social Security, but not to an employer.  Is there any way of reflecting the fact that I had to repay these amounts to my employer and avoiding paying taxes on them (I am currently paying taxes on 85% of the award due to my combined income being greater than 44,000)? 

[HelenC12]

@childclan    Yes, if the amount of repayment is over $3,000, you'll be able take a Claim of Right Repayment deduction. 

While you still have to repay the money, there are a couple of ways you can get a tax break by reporting the repayment on your current year tax return:

1. Take a simple deduction of the repaid income from the current year’s income (this is the easiest option for taxpayers who itemize their deductions).
2. Use TurboTax CD/Download to calculate the amount of tax you overpaid and take a refundable credit. This is the more valuable option, though it requires a bit more work.

Whichever option you choose, we’ll walk you through the steps.

• Taking the simple deduction Scroll down to this section and expand it for the instructions.
• Taking the credit in TurboTax CD/Download  Scroll down to this section and expand it for the instructions.

[Edit 2-6-22|5:36 am PST]

[childclan]

Thank you so much for the information.  This is clearly good news.  I do have some follow-up questions.  I must be doing something wrong, as its making way too much of a difference.

Step 2 - Select the return for the year you received the money - I received all of the money in 2021, although some was allocated to 2020 and 2019 (per my SSA-1099).  Since I received all the money in 2021, do I use that tax return (ie, my current return) to do the copy/calculation?

Step 7-Adjust the Income - Do I do this by adjusting Box 5 of my SSA-1099?  My repayment was split into various amounts - some for LTD (no broken by CY/PY), some for CY STD and some for PY STD (no broken by 2019/2020).  The CY STD amount was reduced because I paid it back in one lump sum (so they said it was reduced for not having taxes taken from it had it been paid in installments). I don't believe I paid taxes on the original LTD benefit, based on the fact I paid for the LTD plan with post-tax dollars (my 2021 W2 had nontaxable third party sick pay in box 12J equal to my 2021 YTD LTD benefit).  I included all amounts (total LTD, CY STD and PR STD) in the step 7 adjustment.  Is that correct?

After I made the adjustment to income, TT took me to the screen where the SSA-1099 had amounts for 2020 and 2019.  I did not make any adjustments to those amounts.  Is that correct?

Step 8 - original total tax-updated total tax =claim of right credit = 9120.  I noted that the Federal Tax Owed actually changed by 9420, so there was an additional $300 credit coming in somewhere that was now kicking in based on the lowered income.  I ignored this in the steps to follow.

Applying the credit step 5/line H, adjusted amount of tax paid - I set that equal to the updated total tax from step 8 - correct?

step6/line E - I set that equal to the claim of right credit from step 8.  I must be doing something wrong somewhere, as the Federal Tax OWED went from 20158 to a REFUND of 10922 (so a 31080 turn around, versus the 9420 change in the copy/calculation file). 

[childclan]

Oops.  Posted to quickly...forgot one more question.  On my SSA-1099 where the PY amounts are noted, there's also acknowledgement that I had to pay 6000 in attorney fees.  Is there any place where I can reflect that reduction in my net award as well?

[JohnW152]

No, such legal fees can't be claimed as a reduction of your award, or as a deduction on your return.

[childclan]

Thank you both @HelenC12 and @JohnW152 for your guidance.  Do either of you have a response to where I'm going wrong in my long post from yesterday (the step by step calc)?

[RobertB4444]

@childclan  In your step by step issue-

Step 2 - yes, you received it all in 2021 (regardless of what year it was for) it goes on your 2021 return.

Step 7 - You've overthought this.  Adjust your income by putting the amount in here that is in box 5 of your 1099-SA minus the amount your repaid your employer.  That is the only amount that you can deduct.  And you can only deduct the amount you repaid your employer if it showed as income when they advanced it to you.

After this step you have entered the tax that you paid three times which has shown a thirty thousand dollar credit.  That obviously isn't what you intended but you haven't paid any tax on any of the amounts you received from social security yet.  You'll pay them with your tax return this year.

Once you've adjusted the social security amount you may want to consider filing your tax return by mail instead of electronically.  That way you can attach an explanation of why the amount on your return doesn't match the 1099-SA.  Since you aren't waiting on a refund that shouldn't be a big deal.