Disability Benefits Repaid

[zeros]

Client was receiving disability payments while she applied for Social Security Disability. She was approved with the Social Security and had to pay back to Prudential the overpaid amount of $3635. this was taken out of her checking account in 2011. She received the benefits in 2010. The benefits received were reported on a w-2 in 2010. I think she is allowed a deduction for the payback in 2011. Where do you deduct this?
Amend 2010, deducted in 2011?

[Koss]

Repayment

That's a repayment of income under IRC 1341.

See page 90 of Publication 17 (2011).

It gets kinda weird. It's not an amended return. You refigure the tax for 2010 as if they had not received the income, and then take a credit on 2011 return.

BMK

[BP.]

You can take either a credit or a deduction in 2011. Check out Pub 17, p. 89-90 or TTB p. 3-21-22 for the two options and the steps to take.

[zeros]

Credit on State Also?

You can take either a credit or a deduction in 2011. Check out Pub 17, p. 89-90 or TTB p. 3-21-22 for the two options and the steps to take.

I would think there would be something due back on the state return also? How is that obtained?

[Burke]

Depends on the state. If you take a deduction, it will be accommodated on my state's return since they start with federal AGI and allow itemized deductions on Sche A. A credit would not pass through. Minnesota starts with federal TI so a deduction would be passed through as well. Check your state for additions/subtractions and/or credits allowed. Then figure the return both ways to see which is more beneficial to the TP when both are combined.