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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4018
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I was receiving long term disability year of 2011 and received

Customer Question

I was receiving long term disability year of 2011 and received a w2 in the amount of $28141.19. I was awarded ss disability in October 2011 but did not receive back monies until Feb 2012. Upon receiving Back ss I had to repay Long Term $27384.78 which is paid in full BUT since I received money in one year and paid back following 2012. Can I adjust my tax's for 2011 - I had my tax's done yesterday and she manually adjusted the W2 and advised me to write a detail letter with copy of the check repaying to show proof and mail the return in. Standard Ins advised they will not send me a w2 that is in a negative amount for 2012? I want to file as she stated with a detailed letter. But since money was received 2011 and paid back as soon as we received check from ss. Makes me nervous I don't want to go into an IRS nightmare. My wife's income makes all my ss taxable.
Submitted: 2 years ago.
Category: Tax
Expert:  Stephen G. replied 2 years ago.

Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

Stephen E. Grizey :

This is a common situation; happens all the time;

Stephen E. Grizey :

It can get complicated; but hang on a minute...........

Stephen E. Grizey :

OK

Stephen E. Grizey :

There is a standard way to eliminate the effect of the double up on social security, but I'm not sure it will benefit you as if the social security would have been taxable at the same rate (both the amount and the income tax rate) had you received it monthly over the period it covers, leaving it in 2012, will in effect defer the payment of tax on that social security for up to 1 year.

Stephen E. Grizey :

Now as far as the regular disability.............it doesn't work quite the same.............

Customer :

ss tax I can handle I'm trying to figure out if I can adjust the W2 the ins company sent me since I repaid the amount but in a differant year

Stephen E. Grizey :

I understand, I was searching for something & I'm having trouble locating it; bear with me another couple of minutes

Customer :

ok

Stephen E. Grizey :

OK, I found it.

Stephen E. Grizey :

No., it doesn't work that way, ie. adjusting the "W2"; first, was it a W2, a W2P or a 1099-R?

Customer :

w2 - yes

Stephen E. Grizey :

Unfortunately, everything is on the cash basis with the IRS.

Stephen E. Grizey :

Ok. the adjustment comes in the 2012 tax year;

Customer :

So I have to pay taxs on something that I have fully paid back?

Stephen E. Grizey :

Although you won't get a negative W2, you'll get a statement that confirms you repaid benefits during 2012 for 2011;

Customer :

Will I get credit for the whole amount and able to adjust off 2012 tax's

Stephen E. Grizey :

Did they withhold taxes on your disability payments?

Customer :

no

Stephen E. Grizey :

You must have requested no withholding?

Stephen E. Grizey :

What happens is this:

Customer :

No this was a disaster of a deal.

Stephen E. Grizey :

You get to recompute your income taxes without the disability income in it and use that amount as either an adjustment on 2011 taxes or compute the tax using an itemized deduction in 2012 for the amount of repayment, and whichever results in less tax, you can choose.

Customer :

I don't understand how do I recompute income taxs without the disability for 2011

Customer :

Don't enter the w2 on 2011 taxs enter on 2012?

Stephen E. Grizey :

Let me get the example; Oh and the same thing can be done with the retroactive social security payment so that if you add the retroactive social security payment that pertains to 2011 and compute the tax on that and it is less than the tax on the retroactive payment included in the 2012 income, then you can use that lower amount as the tax on the retroactive social security payment.

Stephen E. Grizey :

No. See these are only proforma computations to determine the tax you enter on the income tax line;

Stephen E. Grizey :

In order to figure the various options out, that's one way to do it if you use say Turbo Tax, but that's not the way you prepare the returns. The returns include the figures when the payments were received (you don't change W2s or anything like that); the adjustments come in the tax computations.

Customer :

So easiest is to get deduct from 2012 and pay a big tax bill for 2011

Stephen E. Grizey :

I hate to refer you to this as it might ruin your day, :}; but IRS Publication 975 has got all the various worksheets that the IRS wants you to use to figure this out; maybe it would be a good idea to look this over and then we can go over questions/options if you want; all I can tell you is that it is a giant PIA.

Stephen E. Grizey :

IRS.gov - search Publication 975

Stephen E. Grizey :

Correction 915

Customer :

Would that allow me to adjust the money I paid this year on last years taxs

Stephen E. Grizey :

If you are talking about the private insurance repayment you made in 2012, I believe your only option is to take it as an itemized deduction in 2012.

Stephen E. Grizey :

The only recomputation of tax comes in where the benefit payment is denied or delayed and received for a previous year during a subsequent year, which is what happens with Social Security.

Stephen E. Grizey :

Here's a link to an article that you may find interesting, I did:

Stephen E. Grizey :

http://www.buchanandisability.com/helpful-resourcesandarticles/coordination-of-benefits/

Stephen E. Grizey :

Please remember to click on the green "ACCEPT", or the "smiley face" as appropriate; that is the only way we get credit for our work, even if you are on a subscription plan. Feedback, if you have time and bonuses, where you think they are warranted, are always most appreciated. Before or after you ACCEPT, I will be happy to answer any additional follow-up questions you may have. Thanks again for using our service.

If you'd like to contact me again, in the future, just ask for "Steve G" at the beginning of your question.

Stephen E. Grizey :

______________________________________

Stephen E. Grizey :

If you are satisfied with my response, please remember to ACCEPT. If you need anything clarified or have any follow-up questions please let me know.

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