2017 SSDI Lump Sum Repayments to LTD (Long Term Disability Carrier)

[M-M1]

My husband received four lump sum payments this year (2017) from SSDI for himself along with dependent benefits for our three children. The payments include benefits going back to 2015. We were required to pay these lump sums back to his former employers long term disability carrier this year which began paying him benefits in mid-2015. My question, how do we properly document this on our return this year? We received a letter from his former employers LTD insurance carrier including potential income deduction amounts. The letter also referenced IRS Publication 525, which we began wading thru attempting to understand the difference / benefits between taking a deduction vs. a tax credit? Do we simply include the amounts from net benefits received on form SSA-1099 for him along with our three children (all under 14) or just his SSDI benefits under income and then recapture this as an itemized misc deduction since he already paid taxes on long term disability proceeds from prior years? 

Thank you for your time and any direction.

[KatherineC · Accepted solution]

First of all, you do not report the Form SSA-1099's that report the payments your children received.  You will only report the Form SSA-1099 that reports the benefits that your husband received. 

You will report the repayments you make each year as a deduction.

The Claim of Right allows you to take a deduction (or credit) for repayment of income that was taxable in a prior year.  If you don’t itemize, that won't be helpful to you!

IF you pay back less than $3000, the repayments are deductible on Schedule A (subject to the limitation of 2% of your Adjusted Gross Income.)

To report the repayment:

• Log into your return
• Click on Federal
• Click on Deductions and Credits
• Scroll to Other Deductions and Credits. 
• If needed, click on the Show more button.
• Click the button next to Other Deductible Expenses
• The Generation-Skipping tax question doesn't apply to you.
• On the next screen, you will be asked if you have any of the less common expenses.  (One of the expenses listed is the repayment of $3000 or less.)
• On the following screen, you can enter a description and amount.

If you paid more than $3000 and prefer to take a deduction on your Schedule A that isn't subject to the 2% of Adjusted Gross Income limitation:

• The next screen after the instructions above asks if you had Right of Repayment MORE than $3000.
• Click yes, and then enter the amount you repaid.

IF you pay back more than $3000, you have the option of taking a tax credit in 2017 (in the year of the repayment). 

 To calculate and claim the credit you would need to use TurboTax CD/Download because the amount has to be entered in Line 73, box d of your Form 1040.  

Per IRS instructions from IRS Publication 17:

"If you are claiming a credit for repayment of amounts you included in your income in an earlier year because it appeared you had a right to the income, include the credit on line 73. Check box d and enter “I.R.C. 1341” in the space next to that box. See Pub. 525 for details about this credit."    

 For information on calculating the credit,  Click Here     

Go to page 34 and start reading at repayments. You have to recalculate what your tax would have been if the income you repaid wasn't included when you originally filed.  Then take the difference between 1) the taxes you actually paid with the income included and 2) the taxes you would have paid if the income hadn't included the repayment amount.  

Enter the difference as a credit on Line 73, check box d and indicate I.R.C. 1341.

[M-M1]

Thank you Katherine.

[KatherineC]

You're welcome!

[cbcoakley1]

Katherine:  Similar question:  My Hartford LTD policy is post tax benefits (meaning i currently dont pay tax on Hartford LTD payouts).  I was approved for SSDi in August 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 withold by the end of the week from the SSD and I dont know if i should try and with hold  (and risk the wrath of Hartford) or rely have to somehow pay the IRS for a benefit i did not really receive later next year.  Thanks so much for any help.

[cinderl8t]

I had this same situation for this year...paid in 2019 going back to 2015 with a repayment in 2019.  I  understand where this goes.  My question (and thanks for this post) is the letter I received from LTD that shows that I paid the money back and the breakdown (because tecnically I already paid the taxes on this when I put into the system and in 2015-2018. I had to enter adjusted income for Social Security for 2015-2018, and I want to make sure I'm not missing something and not entering anything else.  I entered repayment over $3,000. amount and that's all.  Is that all I need?  (It's a decent chunk.)  Thanks.

[MaryK4]

You can take the Repayment as a credit or deduction- you have entered as a deduction whichis the easier method, but you may want to see if the credit will get you better results- see Solved: Question about: Claim of right repayment over $3,000

@cinderl8t

[cinderl8t]

Thank you.  I received the overpayment (for 2015, 2016, 2017, 2018, and 2019) and made repayment last year,  I understand the repayment goes under Other deductions - as a repayment. I just need to know if there is a form where I state to whom it was repaid and when.  I have that documentation.  Since I already paid tases on the 2015-2019 amounts I repaid I can see why I could take it as a deduction or credit.

[MaryK4]

No, you do not indicate who you paid back on the tax forms, but keep copies of the records with your tax documents.

@cinderl8t