SS disability back pay and repayment Disability Insurance Co

Client has been receiving disability from insurance company for four years (Code J on W2) so it was not taxable. Finally SS is paying him the disability for the four years in a lump sum in 2020 and therefore putting the lump sum in Box 5 of SSA1099.

Let's say his SS box 5 is $100k and he had to send $90k back to insurance company. How does this get accounted for on tax return? Spouse earned about $50k so total AGI is higher. There is a note on SSA1099 that says $30k for 2019, $30k for 2018 and $5k for 2017.

Thanks for any input.

You can see if the Lump Sum Election lowers the 2020 tax bill.

Unfortunately I do believe this is all taxable though and there is no deduction for the repayment, but one of the smarter people here may prove me wrong.

Client has been receiving disability from insurance company for four years (Code J on W2) so it was not taxable. Finally SS is paying him the disability for the four years in a lump sum in 2020 and therefore putting the lump sum in Box 5 of SSA1099.

Let's say his SS box 5 is $100k and he had to send $90k back to insurance company. How does this get accounted for on tax return? Spouse earned about $50k so total AGI is higher. There is a note on SSA1099 that says $30k for 2019, $30k for 2018 and $5k for 2017.

Thanks for any input.

You cannot amend any returns but you might be able to take advantage of §1341 and its procedures under the claim of right. While not a source of authority, Pub 525 gives a nice example how to apply that section.

You cannot amend any returns but you might be able to take advantage of §1341 and its procedures under the claim of right. While not a source of authority, Pub 525 gives a nice example how to apply that section.

How does §1341 come into play here? No taxes were paid on the disability income in previous years.

How does §1341 come into play here? No taxes were paid on the disability income in previous years.

I don't see why that is relevant. §1341 permits a special calculation for repayments that might be helpful to a taxpayer. Pub 525 (page 34) has a section on repayments. You will find the same discussion in Pub 915. Note the title of the section

Code Sec. 1341. Computation of tax where taxpayer restores substantial amount held under claim of right

I don't see why that is relevant. §1341 permits a special calculation for repayments that might be helpful to a taxpayer. Pub 525 (page 34) has a section on repayments. You will find the same discussion in Pub 915. Note the title of the section

Code Sec. 1341. Computation of tax where taxpayer restores substantial amount held under claim of right

It is relevant because the disability income received in the previous years was not included in income. If the income had been included in income in the previous years that would be a different story.

Repayments

If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it.

Thank you! So since the income was NOT in taxable income there is no deduction for the payback here, right?

And because the SSA1099 has the total for all years in the 2020 1099 there is no way to go back and amend prior years because it would cause a mismatch when we file 2020 if we do not include all of box 5?

Correct, but do look at the Lump-Sum Election available. If they are already at 85% taxable for each year it won't help. But if any year would've had less than the 85% maximum taxable they will probably save some money in 2020.

It is relevant because the disability income received in the previous years was not included in income. If the income had been included in income in the previous years that would be a different story.

NS - sorry - my bad - I glossed over the non-inclusion in gross income.