How to claim a lump sum repayment for Long Term Disability?

Forum|Forum|4 years ago
January 18, 2022
1 reply
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Hi,

I started receiving Long Term Disability benefits from an Insurance Co. in 2020. In 2021, I was approved for SSDI benefits and they gave me a lump sum, which I in turn gave to the Insurance Co. The lump sum repayment does not show up on the W2 from the Insurance Company. I read a similar post regarding a 'Claim of Right' which I think applies to me as well... (https://ttlc.intuit.com/community/taxes/discussion/ssa-1099-lump-sum/01/1865495#M666411)

My question are:

1) I use the Desktop version and deleted the 2020 version and have already installed the 2021 version. To figure out the tax difference in 2020 with and without the SS payment, do I need to reinstall the 2020 software? Or, under 2021 Other Deductible Expenses, can I just put the total amount of the lump sum that applied to 2020?

2) The tread above mentions State taxes... I have not even started looking at that yet... I am in Indiana. Do I have to do anything for my State taxes regarding this?

Thank you!

Best answer by AmyC

Answers are

1. There is no need to uninstall prior year software. You should refigure your taxes. Please see methods 1 & 2 and the example on page 36 of Pub 525. The IRS states you should take the one with the lowest tax liability. Here are your options and how to do it, see What is a Claim of Right Repayment.

2.Many states begin with the federal AGI, like IN, in which case, there is nothing extra to do for your state.

AmyCAnswer

Employee

Answers are

2.Many states begin with the federal AGI, like IN, in which case, there is nothing extra to do for your state.

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DshowAuthor

Employee

Thank you!

In #2, you mentioned nothing extra is needed for my State taxes. Does TurboTax take care of this automatically? (I don't understand... I thought that IN did not tax Social Security wages and this lump sum replaced wages I paid State tax on last year. )

DianeW777

Yes, TurboTax will handle the flow of income and adjustments which will flow to your state return because IN starts with the federal adjusted gross income (AGI).

The income was taxed so it should reduce income or tax for both tax returns.

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