Can I be refunded the tax I paid on my Social Security Retirement benefit which was an overpayment that I have to pay back do to my income being over the limit?

[tagteam]

Have you filed an amended return?

[rjs · Accepted solution]

In most cases you do not get a refund of the exact amount of tax that you paid on the overpayment, but you will get an adjustment on your tax return for the year that you pay it back. You do not amend your tax return for the year that you received the overpayment.

The repayment will be shown in box 4 of your SSA-1099 for the year that you pay it back. If you pay it back in 2022, the repayment will be shown on your SSA-1099 for 2022, and it will reduce the net benefits in box 5 that you report on your 2022 tax return. That will reduce the amount of tax that you pay, or increase your refund, on your 2022 tax return. That's how you are compensated for the tax that you paid in the earlier year.

(There is a special way of handling it if the amount you have to pay back in 2022 is more than your benefits for 2022, but that is unlikely in your situation.)

[DSELR]

My Social Security Retirement benefit was overpaid in 2021 due to earned income over the limit. My income is over the limit again in 2022 and as a result my benefit payments were suspended this year beginning with the February 2022 benefit payment. 

I entered into a monthly repayment agreement with SSA which I am paying out of pocket with after tax dollars.  For 2022 my repayment amount is greater than the benefit amount I've received. I paid income tax on the amount overpaid in 2021.   I could use some guidance on how to handle this.

Additionally, I turned 65 in 2022. Since my Social Security benefit is suspended, I've had to pay my Medicare B out of pocket with after tax dollars too. I need some guidance on how to handle this too. 

[rjs · Accepted solution]

Your Form SSA-1099 for 2022, which you will get in January, will have a negative amount in box 5. If the negative amount in box 5 is $3,000 or less you get no tax adjustment for the repayment. (That might seem unfair, but that's the law, under the tax reform law that was passed in 2017.)

If the negative amount in box 5 is more than $3,000, you will have two options for handling it on your 2022 tax return. You will be able to either claim an itemized deduction for that amount, or a credit that is determined by a relatively complex recalculation of your 2021 and 2022 taxes. You would choose whichever option makes your 2022 tax lower, unless you don't want to bother with the complexities of calculating the credit. 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. In the 2021 edition look for "Repayments More Than Gross Benefits" on page 15. The 2022 edition has not been published yet. The only change for 2022 will be a change in how to enter the credit on Schedule 3, if you choose the credit.

Publication 915 refers to the itemized deduction as "Method 1" and the credit as "Method 2."

When you enter your SSA-1099 in TurboTax it will simply ignore the negative amount in box 5. It does not automatically give you either the deduction or the credit. If you use Method 1 it's relatively easy to enter the deduction 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.

You can use Method 2, the credit, with TurboTax, but there are a couple of complications. Method 2 (step 2b) requires recalculating your 2021 tax. TurboTax will not do the calculations for you. (You can do it with TurboTax if you have the CD/Download TurboTax software for 2021, but there is no way to do it in TurboTax Online.) Furthermore, if Method 2 works out better, there is no way to enter the credit in TurboTax Online. The credit can only be entered in forms mode in the CD/Download TurboTax software.

The amount you pay for Medicare Part B can be included in medical expenses if you itemize deductions. Only your total unreimbursed medical expenses in excess of 7.5% of your Adjusted Gross Income (AGI) are deductible. (Enter the full amount that you paid in TurboTax. TurboTax will subtract 7.5% of your AGI.) In addition, medical expenses are an itemized deduction. So again, you will not get any benefit from the deduction unless your total itemized deductions are more than your standard deduction.