ssa-1099

Normally when the social security pays out disability benefits that covers more than one tax year (which it appears they did), you have an option of calculating potential tax owed under two different methods. If you are insistent on preparing your return yourself, I would suggest visiting the IRS website

and downloading publication 915 for details on your options. How Turbotax handles this option, I am not sure and it may not be able to handle it. Yes, generally, disability insurance is not taxable, but benefits received from Social Security CAN BE taxable, depending on AGI and filing status. This might be a good occasion to seek the advice of a paid professional in your area, such as an Enrolled Agent or CPA. I fully understand why the money went back to the company that paid out the long-term disability benefits, but if you could have refused the money from social security, I would have (due to having to pay taxes on that money), but you may not have had that option! Of course, most everyone wants as much refund as possible hehe :) Cathy Ellsworth, KS

If the LTD insurance premiums were paid or heavily subsidized by the employer, the benefit payments are likely TAXABLE. It may be taxed as wage continuation or a disability pension, dependent on his age when he became disability eligible.

"Cathy" wrote:

Definitely follow Cathy's advise with respect to either looking at publication 915 or seeing a paid professional. Since most, if not all, of this payment appears to apply to back pay in prior years, the amounts of that payment that needs to be include in 2006 may be none or minimal depending upon your other income during those preceding years. Worksheets 1, 2 and 4 in Publication 915 help you make the determination on how much needs to be included. Also, Publication 915 includes two other provisions that you don't want to overlook if they might apply. If you included any of your LTD diability income you received from the insurance company as income on your tax return in an earlier year, you can claim an itemized deduction for the part of the payments you included in gross income in the earlier year. If the amount you repay is more than $3,000, you may be able to claim a tax credit instead. Recognize that this provision only applies if you included the income on your return, and thus presumeabley did or would have paid taxes on it If you incurred any legal expenses associated with your social security disability claim, you may be able to deductible them as a miscellaneous itemized deduction on Schedule A (Form 1040), line 22. Assuming that these expenses were paid in earlier tax years, you might have to file an amended return for those years to get any benefit. Recognize that the total of your miscellaneous itemized deductions will have to exceed the threshold amount of 2% of your Adjusted Gross Income in those years and that you would also have had to itemized in those years to have any benefit from amending a return. Publication 915 includes detailed instructions on how you do any of the above.

I have called a couple tax preparation companies and got different answers. That's why I worry that there are people just like me using a computer program. The amt of the disability was 19,000 and that is the amount I paid LTD. The premiums for LTD were paid by us. How would I do the tax credit?

I even learned something new here! Did not know all of this about LTD benefits being taxed in a prior year and then becoming an itemized deduction .....makes sense though!!! I always say that I learn something new every day and this is my lesson for today!

If as you say you received disability payments from the insurance company that were not taxable income because you paid the premiums, then the money you repaid does not create any credit or deduction for you as you never reported the income. You can only have a "repayment" when it is for income that was taxed. Basically, when the tax-free disability income gets converted to SS disability, a taxpayer may find that up to

85% of the SS disability is subject to tax. This depends upon the taxpayers other taxable gross income plus tax-free interest and dividends. There is no exception in the tax law for this process. As previously told you to in this forum, you have the option to include the SSA payment in the year received or you can perform a pro forma analysis that reflects a revised tax for any year represented by the SSA payment. If the sum of the revised tax for the years in question is less than using just the current year, you benefit. This is explained in Pub 915.

-- Alan