Question

How do I handle a lump sum payment for SSD received in 2020 that was repaid to my employer's LTD insurance carrier?

Forum|Forum|5 years ago
February 6, 2021
1 reply
0 views

I received a lump payment of SSD in 2020 that covered LTD I received from my employer's insurance carrier. Box 5 of my SSA-1099 shows me receiving income that the majority of which was repaid to the LTD insurance carrier. Should I subtract what was repaid to the LTD carrier from Box 5 and report that on my tax return? It looks like I'm being taxed on income that I technically did not receive. What do I do?

J

JamesG1

You do not subtract what was repaid to the LTD carrier from Box 5 and report that on my tax return. If I understand you correctly, there are two issues to be addressed.

First you appear to have a claim of right issue.

What year or years did you pay the lump sum to the employer LTD insurance? That year (or years), you are eligible for a repayment that would create a Claim of Right issue. See IRS Publication 17 and enter Control F and search for ‘claim of right’. The repayment credit or deduction would be reported on the current year's tax return. Follow these steps.

Down the left side of the screen, click on Federal.
Across the top of the screen, click on Deductions & Credits.
Scroll to the bottom of the screen for Other Deductions & Credits.
Click on Other Deductible Expenses.
Continue until you see the screen that states Repayments of $3,000 or less or Repayments of $3,000 or more depending upon your situation.

For repayments of $3,000 or more, you also have the option of reporting a credit but you have to re-compute your taxes for the tax year that you paid the income. See this TurboTax Help.

Second, you received a Social Security lump sum payment. In TurboTax Online, a Social Security lump sum payment can be computed by following these steps:

Down the left side of the screen, click on Federal.
Across the top of the screen, click on Wages & income.
Under Your income, scroll down to Retirement plans and social security.
Click on Show more to the right.
Click on Start/Revisit to the right of Social Security (SSA-1099).
At the screen Tell us about the benefits you received, enter the information as it is printed on the form.
At the screen Did you receive any lump-sum payments?, click Yes.
As an example, the year was 2018 and the amount was $5,000.
You will have to answer questions about the 2018 tax return.
Then answer questions about the 2019 tax return.
TurboTax will break down the payments into what amount was received for each preceding year. You pay taxes on the lump sum in the current year tax return.