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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2365
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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I have a client who was receiving long term disability benefits

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I have a client who was receiving long term disability benefits from a employer sponsored LTD plan. She received w2 forms for this income marked as sick pay. In 2012 this totaled $19,105.50 and was included in line 7 of 1040. In July of 2013 she qualified for Social Security Disability retroactive to May 2012. She received a notice from the insurance company that because she received Social Security Disability payments it reduced her Long Term Disability Benefits and she paid them back $18,738.63 for the period between May of 2012 through July of 2013. Our question is how do we reconcile her 2012 tax return and her 2013 tax return in light of this information?

Anne :

Hi

Anne :

Thank you for using justanswer

Anne :

Since the repayment is > $3000, you have 2 choices in how your want to handle this

Customer:

ok

Anne :

The first option is to take a deduction for the income in the year of repayment on your federal Form 1040, Schedule A, “Other Miscellaneous Deductions”. Repayments over $3,000 aren’t subject to the “2 percent floor” (described above). No adjustment is needed on the state return.

Anne :

The 2nd option is to claim a credit in the year of repayment on your federal return. Recalculate tax for the year you received the income, but don’t include the income you repaid. The difference in tax – with and without the repaid income – is the amount of your credit. Report this credit on the “total payments” line of your federal return (for the year of repayment) with the reference “I.R.C. 1341.”

Customer:

ok that's sounds easy.. and #2?

Anne :

You do NOT amend the 2012 return

Anne :

you simply recalculate what the tax would have been had she not received the LTD in that year

Customer:

ok.. i didn't think we would amend the return.. well excellent answer, well worth $30 and I didn't have to leave my office :-)..thanks

Anne :

You're most welcom

Anne :

welcome

Anne :

Please feel free to ask for me by name if I can help you in the future.

Anne :

Just put "for Anne" on the question line

Customer:

groovy.. thanks again Anne.. I sure will..

Anne :

Haven

Anne :

Haven't heard that term in a while.........made me smile.....thank you

Customer:

:).. have a nice day

Anne :

You too

Anne and other Tax Specialists are ready to help you
Thank you very much for the accept and the excellent rating!

Please feel free to ask for me by name if I can help you in the future.