I plan to pay back the benefits received in order to receive a higher benefit at age 70. How would I report that on my tax return(s)? Is it just treated as a deduction for the year in which the refund is made? Or should I file an amended return for the year(s) in which the benefits were received?
Presumably the amount of any deduction would only apply to the portions of the benefits that were treated as taxable income.
Steve
repay. In January of the following year, you will receive an SSA-1099 that will reflect the repayment. Box 5 will have a negative number. How you handle it depends upon whether the negative amount is $3000 or less. If under $3K, you can take a deduction on Schedule A Line 23 (subject to 2% AGI limitation). If the amount is $3K or greater you can choose whichever of the following two methods provides the best tax benefit:
See IRS pub 915 starting on page 15 where the above is explained.
In addition to the "claim of right" methods listed above, the 1040 instructions for line 20 say that you first subtract repayments from any benefits received (even if the repayment pertains to an earlier year). The CoR method then applies to the excess of repayments over benefits. When repayments are less than benefits, they reduce the taxable amount on line
20b.1099-SSA box 5 need NOT have a negative number. Box 4 will be nonzero.
I have the Line 20a/20b instructions in front of me and I don't see what you allude to. The instructions tell you that Box 3 has the gross and Box 4 has repayments. It tells you to use the worksheet to compute taxable amounts except if repayments exceed gross benefits. It says you have no taxable benefit in that case and one should go to Pub 915 to see if you can get a deduction or credit if you ever were taxed on benefits. The instructions never mention Box 5, but it will have a negative number if repayments exceed gross benefits. A read of the original post makes it pretty clear that "Steve" is repaying at least one if not more prior years. In that instance Box 5 will be negative and he should go through the calculations if he ever declared SSA benefits as taxable.
What you're missing is that the CoR procedure doesn't apply to the entire repayment (like it does for all other income types). It applies only to the excess of repayments over current year benefits. Such yields a different result than that of other CoR income types.
SSA doesn't always list repayments in box 4. Although not recently, I have had cases where SSA didn't report repayments, the IRS adjusted, and [the taxpayer and] I prevailed in the subsequent audit. These cases were in the
1990s. Fortunately, the SSA issued manual receipts for repayments tendered at their field offices.
(I was out of town last week, so wasn't able to clarify.) Thanks to all for your guidance. I've looked at the pub 915 instructions, and my conclusion is that the 2nd method (where the net of all benefits received and the amount repaid is negative) can be taken as a tax credit, citing ?I.R.C. 1341? in the margin of line 70. The way I understand the instruction, the amount should be the equivalent of what I would get by calculating a refund as if I were filing amended returns for all the years involved. That way I only take a credit for the actual tax paid on the benefits. Correct me if I'm wrong.
I started taking benefits when I became eligible, even though I was still working, so the tax hit was substantial -- I now know it was a dubious choice to make. But it looks like I will be able to recover from it, with little actual loss.
One further point/question: I've suspended my benefit now, and will resume it when I reach age 70 (in 2 years). So, my plan is (I think) to make the repayment right before I reach 70 (in Jan 2012). I would guess it makes sense to do this in 2011; then I can use the offset against that year's taxes. The only positive to net those against would be my wife's benefit for that year.
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- next time please trim the original post. THX.
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