SSDI lump sum

[Coffee49]

My husband received a lump sum payment for SSDI in February 2019 which covered payments for 2017 and 2018. I see when doing a tax return you can allocate amounts for each year so when he gets a 1099 for this years taxes it should have the amount for each year? So this means we do not have to amend prior year returns? Also he had to repay his government disability retirement 100% of the first year of SSDI pamyents and 60% of the second year of SSDI payments. So we got to keep a small amount of the lump sum from SSDI.  Is there a way to incorportate this in our tax return?

[Critter]

I see when doing a tax return you can allocate amounts for each year so when he gets a 1099 for this years taxes it should have the amount for each year?   The SSA-1099 you get in January will have the breakdown in the lower left corner.

So this means we do not have to amend prior year returns?  Correct ... this all happens on the 2019 return ONLY.

Also he had to repay his government disability retirement 100% of the first year of SSDI pamyents and 60% of the second year of SSDI payments. So we got to keep a small amount of the lump sum from SSDI.  Is there a way to incorportate this in our tax return?   Depends ... if any of the disability  was taxable on the prior year returns  AND   if any of it is taxable on the 2019 return AND  the amount is greater than $3000  then you can do a "claim of right"  to claim a credit for the additional tax incurred by reporting the repaid amount in income.  See IRS Publication 525 for an explanation of that method.  It is available at:  http://www.irs.gov/publications/p525/ar02.html#d0e9279

Look under deductions and credits, then other deductible expenses, then less common expenses if the amount is under $3,000. 

Turbotax on-line does not support the "claim of right" computation.  Turbotax desktop, in the forms mode, permits the credit to be entered in the "smart worksheet" above line 72, but you still would need to compute it manually.

[DanielV01]

It depends.  The situation you describe can potentially all be resolved on your 2019 tax return, although it is likely going to be a complicated procedure.  Exactly what must be done will depend on whether or not the disability retirement you referred to was taxable income or not.  If it was taxable income, and you had to return the disability retirement income, as you state specifically in your question, then you have two separate (but related) tax events:  a lump-sum Social Security distribution, as well as a "claim of right" repayment.  If the amounts returned in the claim of right was greater than $3,000 for each year, it is possible to account for all of this on your 2019 return.  In theory, this is what will happen:

1. The SSDI income "replaces" the portion of disability income that is repaid.  This is important because SS Income is taxed differently than retirement income.  (In general, it is taxed more favorably).  
2. The "claim of right" reduces the taxability of the remaining income and generates additional tax "refund" from the two years in question, which is then claimed as a credit on the 2019 tax return as described above.

Both the lump-sum distribution worksheets as well as the claim of right calculations are independent of one another, and yet related and inter-dependent of one another, since they both contribute to the final common goal.  It is a bit complicated, and TurboTax does not make the calculations for you, as Critter mentions in his comments.  You can get CPA and Tax Expert service through TurboTax by purchasing TurboTax Live in 2019.  Whether you choose this option or ask a professional to assist you, you want to make sure that it is prepared accurately.  

[Coffee49]

Thank you!

[DanielV01]

You're welcome.