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January 29, 2021
Question

If we pay back all social security benefits and stop further payments before April 15, 2021 can we avoid paying taxes on it in 2020?

  • January 29, 2021
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February 3, 2021

Probably not.  Social Security benefits for 2020 are likely not to be changed and you would report the amount shown on the SSA-1099 on your 2020 tax return.

 

If you make the payments in 2021, your repayments will create a of Claim of Right issue.  See IRS Publication 17 and enter Control F and search for 'claim of right'.

 

Repaid social security benefits.

 

If you repaid social security benefits or equivalent railroad retirement benefits, see Repayment of benefits in chapter 7.

Repayment of $3,000 or less.

 

If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it.

Repayment over $3,000.

 

If the amount you repaid was more than $3,000, you can deduct the repayment as an other itemized deduction on Schedule A (Form 1040), line 16, if you included the income under a claim of right. This means that at the time you included the income, it appeared that you had an unrestricted right to it. However, you can choose to take a credit for the year of repayment. Figure your tax under both methods and compare the results. Use the method (deduction or credit) that results in less tax.

 

You would likely pay back more than $3,000 and have the option of taking a tax credit under IRC Section 1341 for the year of repayment.

 

See also this TurboTax Help.

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