Credit for repayment of income in ATX

[joanmcq]

I've got a client that had to repay private disability insurance once his SS disability was approved. Anyone know if there is a worksheet to compute this in ATX?

[Jack from Ohio]

No worksheet that I am aware of.

[TAXMAN]

Could it be repayment of income. I had one and as it turned out almost a break even when the reurn was finally completed. Just thinking outload. However my amount was in the 7k range that tp had to pay back to insurance co. But then with the lump sum on ss created a very slow computation by hand.

[Mr. Pencil]

I've got a client that had to repay private disability insurance once his SS disability was approved.

Private disability (not provided by employer) is not usually taxable, but at least you don't have to get FICA refunded.. If for some reason the disability was included in prior year income, make a copy of the prior return and remove the amount that was later repaid. You can use the software's procedure for amending, or just manually compare the changed tax liability to determine the potential credit for current year.

Then you will need a similar process on the original return, or maybe more than one prior return, to ADD Social Security benefits to see if the lump sum election is worthwhile.

[Jack from Ohio]

Repayment of benefits received in an earlier year. If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year.

Deduction $3,000 or less. If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Claim it on Schedule A (Form 1040), line 23.

Deduction more than $3,000. If this deduction is more than $3,000, you should figure your tax two ways:

1. Figure your tax for 2013 with the itemized deduction included on Schedule A, line 28.

2. Figure your tax for 2013 in the following steps:

   1. Figure the tax without the itemized deduction included on Schedule A, line 28.

   2. For each year after 1983 for which part of the negative figure represents a repayment of benefits, refigure your taxable benefits as if your total benefits for the year were reduced by that part of the negative figure. Then refigure the tax for that year.

   3. Subtract the total of the refigured tax amounts in ( from the total of your actual tax amounts.

   4. Subtract the result in © from the result in (a).

Compare the tax figured in methods (1) and (2). Your tax for 2013 is the smaller of the two amounts. If method (1) results in less tax, take the itemized deduction on Schedule A (Form 1040), line 28. If method (2) results in less tax, claim a credit for the amount from step 2© above on Form 1040, line 71. Check box d and enter “I.R.C. 1341” in the space next to that box. If both methods produce the same tax, deduct the repayment on Schedule A (Form 1040), line 28.

Pub 915.

[joanmcq]

He got the lump sum last year, for 3 previous years and the repayment was 2013. Pain in the butt. But repayment was 14k

[joanmcq]

Darn if after all the convolutions, it was better to take the misc itemized deduction. That's almost never the case, except perhaps that they were already over the 2% haircut. And with the deduction, CA tax is reduced too.