Double Taxation on LTD and Social Security Back Pay

[LazySummer]

I have a client who received several years of LTD payments. Taxable income and we claimed the W2 wages (box 1) on his returns. Social Security ended up paying a lump sum of back disability payments covering 4 years,  and the LTD insurance company took the entire amount as repayment. 

How do I deal with this on tax return. If I just enter the social security form as is, the entire distribution will be taxed. Same is true if I had spread the amounts over the last 4 years. 

However he already paid taxes on the LTD paid (which has now been paid back). So it is double taxation if he paid LTD payout taxes, and pays SocSecurity taxes. I am at a loss and cannot get through to the IRS. thought maybe you nice people can help

Is there a way to claim the funds were already taxed in previous tax returns on this current 2019 return? Amend old returns?

[BobKamman]

IRS Publication 525, pages 34-35. This material is also in IRS Publication 17, which is a useful refresher course (or training on things you might not already know) at the beginning of each tax season (or during a lazy summer).  

[LazySummer]

Thanks BobKamman. I was looking at that too, but wanted second opinions. This is my first time coming across this particular situation in 15 years of tax prep. 

[dkh]

@Anonymousasked this same question yesterday.   @BobKamman , she would find your answer very useful.   Or maybe she just got it from you. 🤔

[Kelley67]

I have that question also. I was approved for SSDI is 2019. I have been off work since Aug 2017 and approved for SSDI in May of 2019.  I have filed both my 2018 and 2019 tax returns. After I got approved, my Social Security sent me a huge check, but was immediately withdrawn from my bank account by my LTD insurance company. I did not touch any of that. I recently received a 1099 form from Social Security stating that my Net Benefits for 2020 is $63,062. Down at the bottom it shows that this amount includes $22,968 paid in 2020 for 2019 and $16,758 paid in 2020 for 2018. I didn't get any of this money in 2020. I am not sure if they are referring to my lump sum back payment I received in May of 2019. 

I also received a letter from my LTD insurance company saying that I may have the opportunity for an income tax offset. 

I don't know how I would even pay something like this. If you found out an answer, would you please be so kind to share with me?  Thank you.

[dkh]

per the answer from @BobKamman - the answer you are looking for can be found at irs.gov in Publication 525, pages 34-35. This material is also in IRS Publication 17

[Kelley67]

I’m sorry. I am not a tax pro. I did try to read, but it doesn’t make sense to me. Could you explain in Layman’s terms?

[sjrcpa]

You're going to need a tax pro to prepare the tax return.

The IRS Publications are written about as plainly as it gets.

[BobKamman]

Hi there,

You’ve come to an Intuit site supporting tax professionals, and you may be looking for support as an individual taxpayer. Please visit the TurboTax Help site for support.

You probably could have found help at a VITA (Volunteer Income Tax Assistance) site, but many of them have closed for the season.  Don't put off important questions until April 15.