Lump sum social security

[Larmil]

Client received lump sum Soc. Sec. in 2009. In 2010 the SSA1099 Box 5 shows $21,000. Of this amount $13.000 was withheld to pay back worker's comp. How should this be handled? Should (up to) 85% of the $21,000 be taxable?

[Koss]

Worker's Comp

Is the amount that was taken in order to pay back Worker's Comp reflected somewhere on the Form SSA-1099?

BMK

[Larmil]

Is the amount that was taken in order to pay back Worker's Comp reflected somewhere on the Form SSA-1099?

BMK

In the explanation:

"Paid by check or direct deposit $7,476.00
Worker's compensation offset $13.108.80
Voluntary Federal income tax
withheld $1,068.00
Total Additions $21.652.80
Benefits for 2010 $21,652.80"


Box 3 and box 5 amounts are both $21,652.80 - NONE in box 4

Thanks

[taxmandan]

Was the workers compensation taxed in the prior year? Sometimes it is and if so, then a deduction of that amount would be taken this year from the SSA. My software has line entries to make that adjustment. I had one last week that was similar, wasn't workers comp. but third party sick pay that had to be repaid from SSA and the sick pay had been taxed in 2009.

[Koss]

Workers Comp

Most workers comp is not taxable.

If it was not taxed in the prior year, then I don't think there is any kind of adjustment or deduction available.

However, regardless of the workers comp, and assuming for the moment that the entire 21K is potentially taxable (or 85%, anyway), there is an election available for lump sum payments of social security benefits. See IRS Publication 915.

BMK

[Larmil]

Most workers comp is not taxable.

If it was not taxed in the prior year, then I don't think there is any kind of adjustment or deduction available.

However, regardless of the workers comp, and assuming for the moment that the entire 21K is potentially taxable (or 85%, anyway), there is an election available for lump sum payments of social security benefits. See IRS Publication 915.

BMK

Thanks, that is what I thought. The lump sum was in 2009 and handled according to the election in Pub 915.

[New York Enrolled Agent]

Client received lump sum Soc. Sec. in 2009. In 2010 the SSA1099 Box 5 shows $21,000. Of this amount $13.000 was withheld to pay back worker's comp. How should this be handled? Should (up to) 85% of the $21,000 be taxable?

IRC §86(d)(3) comes into play here. While worker's compensation is usually not taxable, when it is a substitute for SS benefits, the social security benefit includes the workers comp and is used in full for the taxable consequence.

I'm pasting a snip from a TCS case (caps added) which illustrates this: "If the amount of Social Security benefits that a taxpayer receives is reduced because of the receipt of workers'compensation benefits, then the amount of the workers' compensation benefits that cause the reduction (the so-called OFFSET AMOUNT) is treated as though it were a Social Security benefit."

[Larmil]

IRC §86(d)(3) comes into play here. While worker's compensation is usually not taxable, when it is a substitute for SS benefits, the social security benefit includes the workers comp and is used in full for the taxable consequence.

I'm pasting a snip from a TCS case (caps added) which illustrates this: "If the amount of Social Security benefits that a taxpayer receives is reduced because of the receipt of workers'compensation benefits, then the amount of the workers' compensation benefits that cause the reduction (the so-called OFFSET AMOUNT) is treated as though it were a Social Security benefit."

Thank you (& others). It makes explaining to the client somewhat easier.