Social Security/Private Disability

[David]

Client has been receiving taxable private disability of $1130 per month. When she qualifies for Social Security disability, her private payments will be reduced by the amount she receives from SS. Additionally, she has to repay the private co for amounts she receives retroactively.

She has been notified that she will receive $800 per month starting in May of 2007. In 2008 she will receive 20 months of benefits, but will have to repay any back payments to the private company. Where can this be deducted?

Thanks for your help.
David

[erchess]

Am Confused

When will she start to draw Social Security and in what year will she receive twenty months' worth of benefits?

I have deleted the rest of my post because it was so incomplete as to be misleading.

[OtisMozzetti]

Use IRS Publication #915

The subject is well explained in IRS Publication #915, under the topic "Deductions Related to the Your Benefits" on p. 15. If the amount which has to be repaid to the employer is less than $3000, then all you can do is write it in as an itemized deduction subject to the 2% of AGI on line 23 of Schedule A. If the amount is more than $3000 (which it sounds like this is), then you can take a tax credit for the difference in tax which the payments caused in prior year(s). In other words, refigure the prior years without the amounts of those payments the taxpayer received. The credit goes on Line 70 of Form 1040, and the notation IRC 1341 goes to the left of the credit amount on that line. Notice that if the amount repaid from prior years is more than $3000, you could also simply take a deduction on schedule A not subject to 2% of AGI, on line 28 of Schedule A.

[S T]

Disability Repayments

As Otis noted, Pub 915, but also

Pub 529

Repayments Under Claim of Right
If you had to repay more than $3,000 that you included in your income in an earlier year because at the time you thought you had an unrestricted right to it, you may be able to deduct the amount you repaid, or take a credit against your tax. See Repayments in Publication 525 for more information.

Pub 525 see page 33 regarding repayments and methods to deduct. http://www.irs.gov/pub/irs-pdf/p525.pdf

Sandy

[travis bickle]

Just as an FYI

I had a client just the other day who had this same situation.

When I entered the amount on F1040 L70 with the annotation "IRC 1341" the diagnostics routine said that this prevented the return from being e-filed -- mail-in required.

Hope that the alternative method [Sch A deduction] works better for your client, I really do not like mail-in returns.