For tax year 2021: Repayment of lump sum from Social Security to disability company

[ThinSixty]

I received a lump sum payment of $63,000 from Social Security, for years 2020 & 2021 in 2021.   At the beginning of 2022, I paid back the $63,000 to my long-term disability company.  Supposedly, the disability company will send a form about the repayment for 2022, prior to the filing of year 2022.  The lump sum has "increased" our gross income, and significantly increased the tax due.

Can I show the repayment on the 2021 tax return, thereby nullifying that extra income?  Or, do I have to wait to claim the overpayment in 2022?

My spouse and I are filing "Married filing jointly", taking the standard deduction.

[Mike9241]

 see this link 

https://www.cadizlaw.com/blog/long-term-disability-repayment-following-social-security-award/#:~:tex... 

and this link

https://www.aarp.org/retirement/social-security/questions-answers/are-disability-benefits-taxable.ht... 

so did you receive SSDI or SSI?

just an FYI. as per the article if what you got is SSI it isn't taxed while SSDI maybe depending on what your other income was

what years did you receive disability benefits from the insurance company and were they taxed? 

whether you get a tax deduction or credit for the repayment depends on whether the payments from the disability company were taxed.

in my opinion, you're not repaying the social security befits but the benefits you received from the disability company.

if the insurance company benefits weren't taxed there is no tax relief for the repayment.

if they were taxed you can take a deduction (itemized) or credit for the repayment in 2022 under code section1341

to do this you would need to recompute your taxes for each year you receive the insurance benefits by excluding them.

the total reduction in taxes over the years you received the benefits becomes a tax credit taken on your 2022 return.  

you may be able to use the lump-sum method to reduce the portion of social security benefits that are taxable, if any. 

You must report the entire lump-sum in the year you receive it. Generally, you use your current-year income to figure the taxable part of the total benefits received in that year. However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. You can elect this method if it lowers your taxable benefits.

Under the lump-sum election method, you refigure the taxable part of all your benefits for the earlier year (including the lump-sum payment) using that year's income. Then you subtract any taxable benefits for that year that you previously reported. The remainder is the taxable part of the lump-sum payment. Add it to the taxable part of your benefits for the current year (figured without the lump-sum payment for the earlier year). See IRS Publication 915 for work sheets and more information on this method.

I don't know which version of Turbotax you are using. Turbotax does allow for the lump-sum method but not in the basic version. 

[ThinSixty]

Sorry for the delayed reply.

The lump sum payment was SSDI.  The disability company did collect taxes for the payments they sent.

I may not have fully understood your response.   Can I enter my 2022 repayment to the disability company in our 2021 return?  Claim of Right

We are using Turbo Tax Deluxe.

[Anhnguyen2017]

it is simple . you can call me and i will show you 

[phone number removed]

I am accidenttly discover it

It is in the TURBO TAX

[Sunbaby9]

Can you tell me what you ended up doing? I am in the exact same predicament and don’t have any idea where to even start. 

[BrittanyS]

You can do a claim of right repayment in the year you had to pay back the disability income.  A claim of right repayment is a deduction on your tax return to report income you were required to pay back that was received in a previous year.  You have two options to report the claim of right repayment.  You can take a simple deduction in TurboTax, by providing these steps provided by TurboTax:

1. Go to the Did you pay any generation-skipping taxes in 2024? screen.
2. Answer the questions until you arrive at the Did you have any of these other expenses? screen, and select Yes.
3. On the Tell us about your other expenses screen, enter the amount of the repayment in the Claim of right repayment over $3,000 box and select Continue.

Or if you are using TurboTax Desktop, you can allow the software to do the calculations for you by following these steps:

1. Sign in to your account.
2. Select the return for the year you received the money (for example, if you're repaying money you received in 2023, open your 2023 tax return).
3. Select Save As in Windows or Copy in Mac to save a copy of the return. This is the form you'll be working in for this part.
4. Select Forms in the upper-right corner.
5. Select Form 1040 from the list on the left to open the form (or Form 1040-SR, if applicable).
6. Find the Total Tax line and make a note of this number.
7. Adjust the income you originally reported by subtracting the amount you repaid. For example, if you reported $50,000 in income, but had to repay $9,000, you'll adjust the income to $41,000.
8. After you enter the updated income, TurboTax will automatically calculate your updated tax liability. To determine your Claim of Right Credit, subtract the amount of the updated tax liability from the original tax liability.

Then follow these steps to apply the credit:

1. Return to the current tax year (the credit can only be applied using the Forms mode in TurboTax Desktop).
2. Select Forms.
3. Choose 1040/1040SR Wks from the list and the worksheet will appear.
4. Scroll to the Other Credits and Payments Smart Worksheet (you can find this in a box near the end of the worksheet).
5. Enter the credit amount you calculated on Line D, Claim of Right, IRC 1341 credit for repayments of prior year income.
6. Select the Step-by-Step or Easy Step icon to return to the interview mode and finish working on your tax return.

For more information, see the link below:

• What is a claim of right repayment?

@Sunbaby9