Long-Term Disability benefits for previous year overpaid notice. What do I do?

[dpurkey36]

Backstory: Was on LTD, filed for social security disability. Once approved from SSA, they issue a back payment and then I have to pay back my LTD to my disability provider. 

I received a notice from my long-term disability provider that my taxable long-term disability benefits in a previous year or years were overpaid. It states I repaid $$XXXXX toward such overpayment during the calendar year of 2023. To the extent i repaid taxable LTD benefits to my disability provider that were included in Federal taxable income in an earlier year and that I may be entitled to a Federal income tax deduction or credit. 

I also received my SSA-1099 statement and it shows an *which indicates $$XXX was paid in 2023 for 2022.

How do I correctly file this to ensure I am not overtaxed for the back payment?

[ThomasM125]

If the amount paid back is more than $3,000, you can amend your prior year(s) tax return to receive a credit in the current year for taxes paid in prior years on income you had to pay back. This is called a claim of right. If the amount is less than $3,000, you cannot get a credit or deduction for it in 2023 or previous years under current tax law.

To report a claim of right repayment credit in TurboTax follow these instructions:

1. Using the desktop version of TurboTax, bring up the "Forms" mode by clicking on that icon on the menu bar
2. Choose the 1040/1040SR Wks in the list of forms
3. Scroll down the 1040/1040SR Wks until you see Part II - Other Payments and Refundable Credits 
4. Enter the amount of the credit on line 12 (D) Claim of Right, IRC 1341 credit for repayments of prior year income

You may need to amend your previous year tax return to determine the change in tax. You will see on option for this on your home page in TurboTax, under Your tax returns and documents at the bottom of the page. You will not file the amended return, you just need to remove the income that was paid back to determine the tax you paid on it. It will be the difference in tax due or refunded when you remove the income you paid back.

You can download your online TurboTax program to your computer so you don't have to re-enter all of your information. You will see an option for that on your left menu bar while working on your program in TurboTax. Look for the Tax Tools menu option, then Tools, then see the option on the right to  Save your 2023 return to your computer.

Income repayment of less than $3,000 can only be deducted as a miscellaneous itemized deduction, which is not allowed for tax years beginning after 2017 through 2025.

[DRyd]

I have a similar situation. Mine is for tax year 2024.  We repaid the insurance company in 2024, however the amount repaid was greater than the benefits received for 2024, so they did not issue a W-2 for 2024. The remaining amount (total minus 2024 benefits) is less than $3000. I do not itemize my taxes, so I cannot get any credit for this on this years taxes. Can I file an amended return for 2023 and simply reduce the amount paid on the W-2 for that year by the amount overpaid? 

[IsabellaG]

No, the only year that you can receive any tax benefit under the Claim of Right is the year in which you made the repayment.  You can't go back and reduce the payments you received in a prior year by the repayment you made in a later year.