Repay Social Benefits

[Bird Legs]

Clients wife received Social Security benefits, in 2003, of $8,133.
Clients wife died in August of 2003.
In 2004, there were repayments to the Soc. Sec. Administration in the amount of $958.,
for clients wife.
Am currently working on the 2003 & 2004 tax returns.
How is the S S repayment handled? Is it deducted from the 2003 benefits received and the
net amount reported on the 2003 return?
Or is it somehow deducted on the 2004 return? Of course, there were no S S benefits
received in 2004, for the wife, just the repayment.
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[Gene V]

Repayments

The way the book reads--A taxpayer who repays income (such as Social Security benefits repaid to the Social Security Administration) in the same year the income is received can net the repayment amount against the amount reportable as income.

Earlier year. A taxpayer who repays income that was reported as income in an earlier year must claim a tax deduction for the repayment on the current year tax return. (IRC Sec.1341)

If the amount of the repayment is $3,000 or Less: Claim an itemized deduction on Schedule A as miscellaneous deductions (subject to the 2% AGI limitation). If the taxpayer does not itemize, the tax benefit is lost.

[jainen]

Repayment

Oh, but this wasn't reported as income in a previous year. We are just doing the 2003 return now, and I don't think you are required to pay tax on receipts that you know you are not entitled to keep and that in fact you don't keep.

[Bees Knees]

rules

I don't believe it matters whether or not you are just doing the tax return now. The rules do not say to report income, unless you know it will be repaid in a later year. You report income you receive in the year, unless it was repaid in that same year. Then you take a deduction in later years under the less than or greater than $3,000 rule.

[Armando Beaujolais]

The rules are clear. A taxpayer's accounting period ends on December 31, or in this case, on the date of death. You can't wait until the next year to determine what kind of repayment you would have to make for the prior year. Calendar year, cash basis taxpayer.

There are some statutory exceptions to the rule, such as being able to deduct losses in a presidentially-declared disaster area, in a prior year, but those are specific statutory exceptions. You can't just decide to do it because it might be more convenient.

If that were the case, there would be no reason whatever for IRC section 1341 and the rules for deducting repayment under a claim of right.

From IRS Publication 915:

"REPAYMENT OF BENEFITS RECEIVED IN AN EARLIER YEAR. If the total amount
shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative
figure, you can take an itemized deduction for the part of this negative
figure that represents benefits you included in gross income in an earlier
year."

Repayments of social security happen all the time. It would be huge news if the IRS was going to allow a retrospective netting of the benefits. But it's not big news, because they don't allow that.

[Bird Legs]

Thanks to everyone

for your response. This is the first time I have had this come up.
Bye the way, this message board is great. Have mentioned this once before but
wanted to reiterate.
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