To clarify, the lump sum SSDI payment received in 2008 covered prior years - 2005 ($5,814), 2006 ($24,424), 2007 ($25,248) and 2008 ($25,834). No taxes were paid on these amounts, as we did not know the SSDI would be approved. The majority of this lump sum ($49,563) was paid back to the insurance company in 2008 to offset prior payments from private disability insurance. However, the private disability insurance payments were not taxable. So, no tax has been paid to date on any disability payments. In reading the info on the IRS link, there are several mentions to how the payment was handled in prior years. What I'm understanding from your reply is that we can deduct the $49,563 as misc expenses on Schedule A. Can you please confirm?