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How to reduce a social security lump-sum payment by payback to sick pay agency?

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9 Replies 9
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Level 8

More details please.    

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From 2016-2019, a sick-pay agency paid my client lots of money, anticipating her getting social security disability.   She received W2s for the taxable portions of the amounts and paid tax on it in 2016-2019.    The social security disability check for 2016-2019 came in in 2019.   The sick-pay agency took back well over half of it, and provided a schedule that shows how much of the repayment had been taxable to my client between 2016 and 2019.     How do I reflect that taxable income over four years was repaid to the payor? 

Thanks for asking.   Someone else came on here and said, "you can't."  So she gets to pay income tax twice on this money?  

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Level 15

Look up repayment under claim of right. Also look up social security lump sum payment. There are special tax computations that may apply. But you can't reduce the social security by the amount of the sick pay repayment, which is what you asked.


ex-AllStar
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"Repayment under claim of right" is a new phrase to me.    I've not run into this before.  I appreciate your help. 

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Level 8

You say she gets to pay income tax twice on this money..... is this because the W2 from sick-pay agency is causing the SocSec to be taxed?

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What's causing her social security lump-sum payment to be taxed is a husband with substantial income.   You are asking VERY good questions. 

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Level 15

Also look up how to figure the amount of Social Security that is taxable when paid in a lump sum.  IRS Pub 915

 


ex-AllStar
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Level 15

You can't


ex-AllStar