I hope that some of you can give me some opinions/help with the following situation, which I will describe in brief: My father, who is a union worker is currently 77 years old and continues to work full-time. He has been receiving full social security pension after he turned 70 1/2 (which is like $15K a year) and his yearly work income is about $65K a year. His wife is alive but is retired and has no income. So the total income is about $80K per year for both of them together. They file jointly. It turns out that earlier this year (2007), his local union and the national one for his industry realized that he should had started receiving his 2 union pensions also after he turned 70 1/2. They have calculated that he is owed $31K and $60K in pension back pay from the period of
2002-2007. They want to send him the two checks so he is all "caught-up" and he will now receive the proper pay monthly. Here are my questions:1) If he is to earn the usual $80K and then add these $91K in "back-pay", his total income for the year is going to be $171K. A huge chunk of that will go back to the government for taxes. Correct?
2) If he was being paid those two pensions as he was supposed to, he would have been only adding about $15K per year in additional income per year for the period of 2002-2006. This would of course mean a smaller refund for those years but at least he would not be hit with this huge tax for the year 2007 on this "extra $91K" one-time income. 3) From what I understand, there is no way to go back to re-file 2002-2006 taxes with the $30K and $60K properly divided between each of those years. This would be the best way, I assume? 4) He has NOT been issues or sent those 2 back-pay checks. Is there any way he can instead of cashing them ,have them go to some tax-deffered fund so that he avoids declaring these $91K as income just for the year 2007? It would be the best that he would just withdraw from the $91K like $10K per year onwards and limit his tax exposure. Any help is appreciated in this complicated sitation. It's just I think it's unfair that although he is getting all the money that is due to him that due to the union's mistake he is going to be taking a huge tax hit for the year 2007. Thank you!