Social Security Benefit Repayments

[taxu2]

I have a client that has not filed their 2017 tax return. She received a letter from the IRS of the deficiency along with the income and withholdings reported as required. She received Social Security Benefits. She was required to repay some of the benefits. On her SSA 1099 box 2 and 5 are the only boxes filled out with the same amount of $28,868.00. All the other boxes are empty. However, at the bottom of the form it states *$11,528.00 paid in 2017 for 2016. But that amount is not in box 4. When I prepare the return as presented it taxes the amount in Box 5. The letter from the IRS has deducted the $11,528.00. So should I prepare the return without the 11,528.00 in box 4 and let the IRS make the adjustments when received or should I put that amount in box 4 even though it is not on the current form I have? 

[dkh]

The letter from the IRS has deducted the $11,528.00.      Deducted from what?  

Wouldn't SSA send letters regarding repayment of benefits not the IRS?

[taxu2]

I assume they deducted it from the 28,868.00. Because if I put the 11,528 in box 4 it gives the social security benefits as 17340.00. When I do this, my tax return comes out to the same as what the IRS says she owes. She repaid that money, but it was after the form was sent. I guess the IRS got that information from them. 

[qbteachmt]

Are you asking about back pay?

As you approach a qualifying birthdate (Full Retirement Age, which was 65 and is now a moving target) or later, and you initiate SS payouts, they offer up to 6 months back pay. Read:

https://www.irs.gov/faqs/social-security-income/back-payments/back-payments

[taxu2]

They overpaid her for disability payments. The letter from the IRS shows TY2016 repayments of 11,528.00. It's just not listed on box 4 of the Form I have. But if I enter that amount in box 4 I get the same tax due that the IRS is requesting. Just didn't know if I should enter the amount in box 4 since it's technically not on the form I'm entering or if I should just enter as I have it and let them make the adjustment. 

[qbteachmt · Accepted solution]

I think you have a mixed perspective.

You have disability payments; not Social Security benefits.

You have a note for "amount paid" which is paid to her. You are trying to deduct something not in Box 4, which would show repaid by her. That's why Box 5 would be a Net.

It seems she got an additional amount in 2017 that was for 2016.

You didn't state when she repaid that amount.

"I assume they deducted it from the 28,868.00."

You don't make any assumption. You follow the reporting.

"So should I prepare the return without the 11,528.00 in box 4"

If it's not on the form, you won't report it as if that is on the form.

"The letter from the IRS has deducted the $11,528.00"

Deducted from something; or, just not showing it, since it is not for 2017?

You can't mix perspectives. It won't make sense.

[taxu2]

Now that does make sense. Thank you for the clarification. 

[BobKamman]

Why are you preparing a return in the first place?  If you have a statutory notice of deficiency, IRS has already prepared a substitute for return.  If you disagree with it, or with the proposed penalties, the next stop is Tax Court if it has been less than 90 days since the notice was issued.  But for 2017 -- I think they finished working on those, a couple years ago.  

Maybe you're trying to catch up with a state return.   

[taxu2]

I'm beginning to wonder that myself. So she was issued disability benefits through her employer on a W2 form. Once she qualified for Soc Sec disability benefits she was overpaid and had to repay the benefits, in which she did. So by claiming her W2 disability as income along with the soc sec disability isn't she being taxed on money that she repaid and shouldn't be? 

[qbteachmt]

"So by claiming her W2 disability as income along with the soc sec disability isn't she being taxed on money that she repaid and shouldn't be?"

You never told us what year she repaid it in.

We all pay taxes on all of the income, for the year. If she repaid it later, that is something to take care of for that year it was repaid.

[BobKamman]

I think there are so many apples and oranges mixed up here that if we throw in some pears and cherries, we'll have a decent fruit salad.  I have never seen repayments to employers (or their disability insurers) shown on a 1099-SSA.  Social Security sends all the money to the beneficiary, who then writes a check, not to Social Security, for the repayment.  

What the 1099-SSA is telling you that the $28,868 includes $11,528 attributable to 2016.  The employer disability probably ran out in 2016, so that's the only amount that had to be paid back.  (Nothing was ever paid back to Social Security.  Got it?)  If the IRS notice of deficiency (which you haven't told us, when it was issued) included only the $17,340 in benefits attributable to 2017, then don't rock the boat.  Maybe they guessed that she was eligible for a deduction or "claim of right" adjustment for that amount, and were kind enough to allow it without even being asked.  

You tell us that "she was required to repay some of the benefits."  How much?  It's unlikely that it would be the same $11,528 amount.  But even if you want to admit liability for a greater amount than IRS assessed, you should have that number.  

[taxu2]

The IRS informed her to file her taxes as she normally would with all documentation regarding her claim and repayment of benefits she made and they would review before tax court. Just found out she made the repayments in 2018 and did not take a deduction during that year. So I guess next thing is changing that year as well. Thanks for the information. I honestly got a chuckle out of the fruit salad comparison. 

[qbteachmt]

"found out she made the repayments in 2018"

That's why every detail matters. That's why perspective matters.

[BobKamman]

"The IRS" is a big place.  Who told her that?  Did she file a Tax Court petition and now she's dealing with Appeals?  Sounds like you're coming in at the end of the story.  As for 2018, the statute expires in less than two weeks.  Aren't you glad you don't have much else to work on these days?