Barney Byrd wrote:
- quote -

In addition to the federal taxes described above, you also
have to consider state taxes. In the case of California
(the only state I've had this experience with) there was no
obvious method to reclaim taxes paid on the refunded
disability payments. However California does have a
Taxpayers Advocate office and they did essentially the same
calculations as for federal.

There are prior posts in this newsgroup on this topic. Try
searching for "right of claim" or "1341" (hope I have that
right).

btw, where federal taxes provide choices, be sure and
calculate both methods; the method resulting in lower taxes
is not obvious.

And don't delay - the only problem I had with California was
that some years being recalculated were older than allowed
for amended returns. Even though they knew that amended
returns were not being filed (!!!), that the results would
be used on the current year return, working with those
earlier years still confused them. I wrote those years off
rather than argue and risk losing the majority that I had
already recovered.

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"tricks" <tricks4u[at]hotmail.com> wrote:

- quote -

Since your question implies that the long-term disability
(LTD) payments were taxable to you my reply is composed
accordingly. If this is an incorrect assumption on my part,
you will need to follow up with a clarification.

First, you need to understand clearly that the scenario you
describe above actually presents two related but separate
tax issues. It doesn't matter which one gets addressed
first, so I'm going to explain briefly the tax consequences
with respect to the repayment of the LTD.

I assume the total LTD you must repay is more than $3,000-
it's to your benefit to repay all of it in one tax year or,
if you take more than one year to repay it, that you repay
more than $3,000 each year. As long as you repay more than
$3,000 in any single tax year, you will be entitled to claim
the repayment as an itemized deduction (Schedule A) or to
claim a refundable tax credit for the difference between the
tax you actually paid and what your tax would have been had
you not received the LTD. I need to emphasize that the tax
benefit for the repayment is claimed in the year you
actually repay the LTD. You do not file amended returns for
years prior to 2004.

You will find the tax treatment of repayments explained on
page 30 of IRS Publication 525.

http://www.irs.gov/pub/irs-pdf/p525.pdf

As for the taxability of the retroactive social security
disability (SSD) benefits, you can choose to report all of
the benefits in the year you actually receive them,
presumably 2004. Or, you can opt to use a provision known
as the lump sum election (LSE). As I said above regarding
the LTD repayments, the LSE also does not involve filing
amended returns.

The LSE is explained on page 10 of IRS Publication 915.

http://www.irs.gov/pub/irs-pdf/p915.pdf

I don't recommend you attempt to do these calculations
manually. Either buy a home tax preparation program like
TurboTax or use the services of tax professional, preferably
a Certified Public Accountant (CPA) or an Enrolled Agent
(EA), for your 2004 return. The storefront tax services
generally are not the best places to get help with this type
of return.

Barney Byrd

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tricks wrote:

- quote -

SS disability is normally non-taxable, although I don't know
about retroactive SS disability payments.

If it IS taxable, and must be repaid to the LTD company,
then the amount repaid is deductible as an itemized
deduction. This may not put you in exactly the same tax
situation as if you never received the money, but it should
be close.

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I have been appoved for S.S disability and understand they
are going to make my pay retro active from 1999 however all
of this money is supposed to be paid back to my long term
disability company, if they get all of this money who pays
the taxes? thanks for any help. Oh one more thing if I pay
them back in payments it would seem they still would pay the
tax on this money.

Again thanks.
lata..Tricks

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