I have a client who received several years of LTD payments. Taxable income and we claimed the W2 wages (box 1) on his returns. Social Security ended up paying a lump sum of back disability payments covering 4 years, and the LTD insurance company took the entire amount as repayment.
How do I deal with this on tax return. If I just enter the social security form as is, the entire distribution will be taxed. Same is true if I had spread the amounts over the last 4 years.
However he already paid taxes on the LTD paid (which has now been paid back). So it is double taxation if he paid LTD payout taxes, and pays SocSecurity taxes. I am at a loss and cannot get through to the IRS. thought maybe you nice people can help
Is there a way to claim the funds were already taxed in previous tax returns on this current 2019 return? Amend old returns?
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IRS Publication 525, pages 34-35. This material is also in IRS Publication 17, which is a useful refresher course (or training on things you might not already know) at the beginning of each tax season (or during a lazy summer).
Thanks BobKamman. I was looking at that too, but wanted second opinions. This is my first time coming across this particular situation in 15 years of tax prep.
@Anonymousasked this same question yesterday. @BobKamman , she would find your answer very useful. Or maybe she just got it from you. 🤔
I have that question also. I was approved for SSDI is 2019. I have been off work since Aug 2017 and approved for SSDI in May of 2019. I have filed both my 2018 and 2019 tax returns. After I got approved, my Social Security sent me a huge check, but was immediately withdrawn from my bank account by my LTD insurance company. I did not touch any of that. I recently received a 1099 form from Social Security stating that my Net Benefits for 2020 is $63,062. Down at the bottom it shows that this amount includes $22,968 paid in 2020 for 2019 and $16,758 paid in 2020 for 2018. I didn't get any of this money in 2020. I am not sure if they are referring to my lump sum back payment I received in May of 2019.
I also received a letter from my LTD insurance company saying that I may have the opportunity for an income tax offset.
I don't know how I would even pay something like this. If you found out an answer, would you please be so kind to share with me? Thank you.
per the answer from @BobKamman - the answer you are looking for can be found at irs.gov in Publication 525, pages 34-35. This material is also in IRS Publication 17
I’m sorry. I am not a tax pro. I did try to read, but it doesn’t make sense to me. Could you explain in Layman’s terms?
You're going to need a tax pro to prepare the tax return.
The IRS Publications are written about as plainly as it gets.
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