- quote -

If as you say you received disability payments from the
insurance company that were not taxable income because you
paid the premiums, then the money you repaid does not create
any credit or deduction for you as you never reported the
income. You can only have a "repayment" when it is for
income that was taxed.

Basically, when the tax-free disability income gets
converted to SS disability, a taxpayer may find that up to
85% of the SS disability is subject to tax. This depends
upon the taxpayers other taxable gross income plus tax-free
interest and dividends. There is no exception in the tax law
for this process.

As previously told you to in this forum, you have the option
to include the SSA payment in the year received or you can
perform a pro forma analysis that reflects a revised tax for
any year represented by the SSA payment. If the sum of the
revised tax for the years in question is less than using
just the current year, you benefit. This is explained in Pub
915.

--
Alan
http://taxtopics.net

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Helpful One wrote:
- quote -

I even learned something new here! Did not know all of this
about LTD benefits being taxed in a prior year and then
becoming an itemized deduction .....makes sense though!!! I
always say that I learn something new every day and this is
my lesson for today!

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"Helpful One" <tryingtoh...[at]voyager.net> wrote:
- quote -

I have called a couple tax preparation companies and got
different answers. That's why I worry that there are people
just like me using a computer program. The amt of the
disability was 19,000 and that is the amount I paid LTD.
The premiums for LTD were paid by us. How would I do the
tax credit?

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"Cathy" <countessa[at]eaglecom.net> wrote:
- quote -

Definitely follow Cathy's advise with respect to either
looking at publication 915 or seeing a paid professional.
Since most, if not all, of this payment appears to apply to
back pay in prior years, the amounts of that payment that
needs to be include in 2006 may be none or minimal depending
upon your other income during those preceding years.
Worksheets 1, 2 and 4 in Publication 915 help you make the
determination on how much needs to be included.

Also, Publication 915 includes two other provisions that you
don't want to overlook if they might apply.

If you included any of your LTD diability income you
received from the insurance company as income on your tax
return in an earlier year, you can claim an itemized
deduction for the part of the payments you included in gross
income in the earlier year. If the amount you repay is more
than $3,000, you may be able to claim a tax credit instead.
Recognize that this provision only applies if you included
the income on your return, and thus presumeabley did or
would have paid taxes on it

If you incurred any legal expenses associated with your
social security disability claim, you may be able to
deductible them as a miscellaneous itemized deduction on
Schedule A (Form 1040), line 22. Assuming that these
expenses were paid in earlier tax years, you might have to
file an amended return for those years to get any benefit.
Recognize that the total of your miscellaneous itemized
deductions will have to exceed the threshold amount of 2% of
your Adjusted Gross Income in those years and that you would
also have had to itemized in those years to have any benefit
from amending a return.

Publication 915 includes detailed instructions on how you do
any of the above.

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LCU...[at]COX.NET wrote:

- quote -

If the LTD insurance premiums were paid or heavily
subsidized by the=20 employer, the benefit payments are
likely TAXABLE. It may be taxed as=20 wage continuation or a
disability pension, dependent on his age when=20 he became
disability eligible.

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LCUPIT[at]COX.NET wrote:

- quote -

Normally when the social security pays out disability
benefits that covers more than one tax year (which it
appears they did), you have an option of calculating
potential tax owed under two different methods. If you are
insistent on preparing your return yourself, I would suggest
visiting the IRS website (www.irs.gov) and downloading
publication 915 for details on your options. How Turbotax
handles this option, I am not sure and it may not be able to
handle it.

Yes, generally, disability insurance is not taxable, but
benefits received from Social Security CAN BE taxable,
depending on AGI and filing status.

This might be a good occasion to seek the advice of a paid
professional in your area, such as an Enrolled Agent or CPA.
I fully understand why the money went back to the company
that paid out the long-term disability benefits, but if you
could have refused the money from social security, I would
have (due to having to pay taxes on that money), but you may
not have had that option!

Of course, most everyone wants as much refund as possible
hehe

Cathy
Ellsworth, KS

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My husband was out of work for 2 1/2 years. He has been
receiving LTD income from an insurance company through his
employer. We have filed for SS Disability with complications
as usual. However, in Feb 2006 they sent us a large check
for back pay for a portion of the period he was off but it
stopped at that. The check was for over 19,000. We had to
turn around and write a check for this amount and give it to
the insurance company as reimbursment. I am now receiving
this SSA-1099. When I complete my Turbo Tax and input this
form, it affects my refund tremendously. I have to pay tax
on this but I actually only had the money for 1 day. All
this did was run through us and tax us for it. But we did
not get it.

I've heard that disability income is not taxable. Is this
true? Please advise. We need as much refund as possible.

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