Repayment LTD Benefits - Pub 525

Technical topics regarding tax preparation.
#1
TarcyNC  
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27-Mar-2023 11:04am
Location:
NC
My client repaid long term disability benefits in 2022, that were included in his income in 2021. Repayment was required because Social Security paid out benefits owed to him in 2022. He did receive a letter from the Insurance Carrier verifying these facts, he also received a form SSA-1099 for the amount he received in 2022. In researching this I am confused as to if this repayment would be a deduction or a credit (Pub 525, pg 37). Thank you!
Other Information:
Amount is over $3,000
Individual return
Not a repayment to Social Security
Client does not itemize
 

#2
Nilodop  
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Location:
Pennsylvania
Deduction or credit is taxpayer's choice, whichever comes out better for taxpayer.
Here's the Code section. https://www.law.cornell.edu/uscode/text/26/1341
You would claim the credit, as there is no misc. itemized deduction in 2022 for this item even if it's large and would otherwise cause taxpayer to itemize.
The form you'd put it on is Schedule 3 of Form 1040, line 13d.

I had not considered (before now) a long shot possible argument by IRS along these lines. The law says that a condition for applying 1341 is that
(2) a deduction is allowable for the taxable year because it was established after the close of such prior taxable year (or years) that the taxpayer did not have an unrestricted right to such item or to a portion of such item;
. That raises whether in your facts 1341 even is available. Absent IRS clarification on this, I'd interpret it that 1341 is available, because the deduction would be allowable in the sense that it meets all the other tests of 1341 and that section is a mitigating section, to be interpreted in taxpayer's favor.

There is likely something published or even discussed here in TPT on it. I have not looked.
 


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