Social Security Lump Sum and Subsidy issue

[Tax Prep by Deb]

Ok,

 

I got a good one, and so far can't seem to find the answer.

 

Client got laid off January of last year, went on un-employment.  Wife didn't work but was fighting Social

Security to get disability.  Based on projected amount of un-employment, went to health care exchange and qualified for a subsidy that paid all but 2 dollars of their health insurance.

 

In November the client's wife won her case and received a lump sum payment going back to 2012.  Do I Include the full amount of the payment when figuring out their subsidy reconciliation, or is there a way to only use the part for the current year?

 

I know there is a lump sum worksheet for figuring taxable portion of social security that allows me to see if including in current year or what it would have been if received in the proper year.  Just not sure what figure to use for the ACA Subsidy Reconciliation.

 

It probably wouldn't be a problem except that he also cashed out one of his 401k thus making it necessary to payback all the subsidy.

[Jack from Ohio]

Use only the amount that applies to 2014.  There is a worksheet on the SS tab.

[Tax Prep by Deb]

Thanks Jack,

I hadn't got that far, but I was hoping for some info on it!

[jklcpa]

What was the income the wife received?  Was it SSA, SSI, or SSDI?  It makes a difference in calculating household income depending on which it was.

[Tax Prep by Deb]

ssa

[jklcpa]

So I'm really curious about how ATX handled this. In calculating MAGI for purposes of the PTC reconciliation, isn't the program adding back the difference between lines 20a and 20b no matter what year it is for?   That is what should happen according to §36B(d)(2)(B ).  I couldn't find anywhere that said SSA payments of prior years received in the current year as a lump sum can be excluded.

[Tax Prep by Deb]

Use only the amount that applies to 2014.  There is a worksheet on the SS tab.

Jack

 

Where is the worksheet that you are referring to?  I opened up the normal worksheet and filled out the info and then I did the lump sum worksheet, but it turns out better to include everything this year, except for the ACA part.  I cannot figure out how to use just the amount for this year, and it makes a huge difference.  Any help would be greatly appreciated.

[Margaret CPA in OH]

Debi and Jack, I also have a client that received prior year SSA payments and is hit hard with ACA pay back. Where is this area on the SS tab to indicate prior year payments? I couldn't find it. I also don't see where to use a lump sum worksheet.

Jack and KC, you seem to know the location. Please share and thanks!

[jklcpa]

Debi and Jack, I also have a client that received prior year SSA payments and is hit hard with ACA pay back. Where is this area on the SS tab to indicate prior year payments? I couldn't find it. I also don't see where to use a lump sum worksheet.

Jack and KC, you seem to know the location. Please share and thanks!

 

I'm not Deb or Jack, but if you open the tab for line 20 SS benefits and look toward the bottom you should see a line for line 20 on there that is labeled for the lump sum, that is if it still looks like it did in 2011.  Click on that line for the lump sum and hop to the lump sum worksheet. 

 

The lump sum worksheet is only beneficial if the income was low enough in the earlier year(s) to which the lump relates that would make less of the benefits taxable than if they are all included in the one calculation for the current year, BUT then the taxable portion is still all included on the 2014 return, the lump sum worksheet is only to determine how much will be taxable.  ATX does handle this calculation well, so you might as well try it both ways.

 

Since the benefits are received in 2014 and are all going to be reported on the 2014 no matter what year they are for, the entire lump sum amount received will be included in MAGI for purposes of calculating the premium tax credit on Form 8962.  I was trying to say that in my earlier post and didn't want to come out directly and say other information given was wrong, but there is no provision that I can find that says that only SS benefits paid for the current year are included in MAGI and prior years paid as a lump sum in 2014 are not.  I don't see why this would be any different than any other income that was received during the year. The purpose of using MAGI is to take into account all of the resources the taxpayer had available during the year to pay the premiums and determine if they needed help via the subsidy. It makes no sense to exclude the lump sum payment simply because it is for a prior year, because the whole point is that it was received and available for spending toward the premiums in the 2014 tax year.

 

Someone let me know if you find something to the contrary.

[Margaret CPA in OH]

Judy, once again the life saver! I completely missed that line when I looked before and nearly missed it again not realizing at first that it was a jump to line. I did the input and it didn't help her, after all, on any front. But I learned something new! And yes, I understand that the money was available to pay in 2014. I cannot imagine what she was thinking when signing up then receiving a full year of SS and withdrawing $29,000 from her IRA. So at 579% of the poverty level and her selection of a plan 26% higher than the SLCSP, she needs to repay all $5225 of the advance ptc. She's not happy, an understatement, but didn't deserve so much credit.

[Tax Prep by Deb]

That is true, however client had been fighting for this for three years, finally won in November of 2014. The client had no way of knowing that this would finally happen. No time to make correction, but is penalized now becsuse of it.

I know its the law, but it would seem like some sort of provision should have been made. This is the difference between owing 2500 and 9800.

Edited March 10, 2015 by Tax Prep by Deb

[easytax]

I will ask the "dumb" question.

 

If she was awarded in November ---- did she actually receive the reward in 2014?  The Social Security people I have dealt with were good but NOT FAST -- it typically took a couple of months before the check/deposit was actually received.

[Cathy]

I think I found the answer to the back payments in the Federal Register Vol. 77, No 100 which is listed as the Final regulations of the Health Insurance Premium Tax Credit.  It is as follows:

 

2) Modified adjusted gross income. Modified adjusted gross income means adjusted gross income (within the meaning of section 62) increased by— (i) Amounts excluded from gross income under section 911; (ii) Tax-exempt interest the taxpayer receives or accrues during the taxable year; and (iii) Social security benefits (within the meaning of section 86(d)) not included in gross income under section 86.

 

Section 86(d) of the Tax Code is as follows:

 

(d) Social security benefit

(1) In general

For purposes of this section, the term “social security benefit” means any amount received by the taxpayer by reason of entitlement to—

(A) a monthly benefit under title II of the Social Security Act, or

(B ) a tier 1 railroad retirement benefit.

(2) Adjustment for repayments during year

(A) In general

For purposes of this section, the amount of social security benefits received during any taxable year shall be reduced by any repayment made by the taxpayer during the taxable year of a social security benefit previously received by the taxpayer (whether or not such benefit was received during the taxable year).

(B ) Denial of deduction

If (but for this subparagraph) any portion of the repayments referred to in subparagraph (A) would have been allowable as a deduction for the taxable year under section 165, such portion shall be allowable as a deduction only to the extent it exceeds the social security benefits received by the taxpayer during the taxable year (and not repaid during such taxable year).

(3) Workmen’s compensation benefits substituted for social security benefits

For purposes of this section, if, by reason of section 224 of the Social Security Act (or by reason of section 3(a)(1) of the Railroad Retirement Act of 1974), any social security benefit is reduced by reason of the receipt of a benefit under a workmen’s compensation act, the term “social security benefit” includes that portion of such benefit received under the workmen’s compensation act which equals such reduction.

(4) Tier 1 railroad retirement benefit

For purposes of paragraph (1), the term “tier 1 railroad retirement benefit” means—

(A) the amount of the annuity under the Railroad Retirement Act of 1974 equal to the amount of the benefit to which the taxpayer would have been entitled under the Social Security Act if all of the service after December 31, 1936, of the employee (on whose employment record the annuity is being paid) had been included in the term “employment” as defined in the Social Security Act, and

(B ) a monthly annuity amount under section 3(f)(3) of the Railroad Retirement Act of 1974.

(5) Effect of early delivery of benefit checks

For purposes of subsection (a), in any case where section 708 of the Social Security Act causes social security benefit checks to be delivered before the end of the calendar month for which they are issued, the benefits involved shall be deemed to have been received in the succeeding calendar month.

 

At first, I thought I didn't have to include in the MAGI the December, 2013 SSD check my client received in January of 2014.  Now, after reading it again, even though Section 86 specifically talks about such payments can be excluded from MAGI, the Federal Register seems to say otherwise.

 

Any Comments, PLEASE!!!!