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Arthur Rubin
Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1551
Experience:  22 years of tax preparation experience, including individual, trust, and estate returns.
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My wife was disabled from 2007 through 2010. Private disability

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My wife was disabled from 2007 through 2010. Private disability insurance allowed us to survive. Late in 2010 Social Security paid us $51,666 (box 5 1099 amount). The private insurance compnay drew back about $37,600 of the SSD payment, $3,700 went to the law firm that represented my wife to Social Security. My rough calculation is that if I report the lump sum as a lump sum we will be responsible for about $8,000 in taxes (we managed to earn $44,000 between the two of us in 2010.
Is there some extra information published somewhere about understanding Publication 915 ,"Social Security and Equivalent . . ." I understand that there is some way to calculate tax credits for the amounts repaid to the private insurer . . . but i can for the life of me make heads or tails of how to do it for multiple years . . . Pub. 915 seems to use only a single previous year.
If this is too complicated for me to work out . . . about what would a preparer charge.
We normally file the standard exemption and deductions.
Ron Noon

Arthur Rubin :

Thank you for using JustAnswer/eAnswer.

Arthur Rubin :

In addition to processing the Social Security lump sum taxation, you can claim a deduction or credit for the $37,600, as follows:

Arthur Rubin :

First, if you repaid the money to the disability company in 2010, you subtract the repaid amount attributed to 2010 from the payments before reporting it.

Arthur Rubin :

Aside for that, for each year for which you repay the insurance company:

Arthur Rubin :

If it's over $3000, you have the option of taking an itemized deduction (not subject to the 2% limit) in the year repaid, or taking a credit on the tax return for the year repaid, of the amount of tax in that year (2007-2010) due to the disability income.

Arthur Rubin :

If under $3000, you only have the option of taking an itemized deduction (subject to the 2% limit) in the year repaid.

Arthur Rubin :

The legal expenses are deductible as miscellaneous itemized deductions subject to the 2% limit in the year paid.

Arthur Rubin :

Publication 915, and the examples in publication 17 referring to the "claim of right" deduction and credit, only apply to single years, as well. You need to do the calculation for each year, and have a separate option of deduction or credit for the repayment applicable to each year. I don't know whether, if you elect the Lump Sum calculation to determine the amount of Social Security income taxable in 2010, whether the virtual amended returns for the prior years include the back social security income attributed to those years. Publication 915, in the section "Repayments More than Gross Benefits", goes over the procedure, although it seems to state that only the total repayment needs to be over $3000, rather than the repayment attributed to each year.

Customer:

So for the delay, but life intervened. I had what a cardiologist described as a "minor heart attack". and my wife (an RN) insisted that I put aside any stressors for awhile. I think i understand the answer. Thank you kindly for your time and assistance.

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