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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I was overpaid by Social Security and now have the choice of

Customer Question

I was overpaid by Social Security and now have the choice of paying them back in a lump sum or arranging a repayment schedule, which includes the option of their withholding my monthly benefits until the overpayment is cleared. I can afford a lump sum payment, but it seems that I might be better served by having them withhold benefitsm My rationale is twofold: it would reduce my tax liability for the year the benefits are withheld; and if I repay them via a lump sum, it is with after tax dollars.
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.

LEV :

Hi and welcome to Just Answer!
If part of your social security benefits was included into your taxable income - and now you pay it back - you may reduce your tax liability in the year of repayment.

LEV :

If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it.
You may see more details about claiming repayments in IRS publication 525 page 36 - http://www.irs.gov/pub/irs-pdf/p525.pdf

LEV :

If overpaid Social Security benefits will be withholding your monthly benefits - that will not reduce your tax liability - the total amount of benefits will be considered in determination of your tax liability - but whatever will be withheld for overpayment - will be treated as repayments.

Customer :

All of the SSA benefits in question were considered a part of my income. The year in question was 2008. The amount is $4000+. If I understand you correctly, if I repay the amount in calendar 2011, I can take a credit in 2011. Would that credit be against my income for 2011 or would it be a tax credit in the amount of tax paid in 2008 for the $4000=?

LEV :

When you received your Social Security benefits in 2008 - part of it - not the full amount - was included into your gross income for tax purposes.
When you pay it back - you need to determine which part of repayment is repayment of previously taxable income - and which part is a repayment of nontaxable income.
If you repay in 2011 - depending on the amount of repayment related to taxable income - you may either claim a deduction or a credit. In most situations - claiming a credit is more beneficial.
Yes - if you repay in 2011 - that will go against your 2011 tax liability - but you will use your 2008 tax information to determine the amount of a credit.

Expert:  Lev replied 2 years ago.
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