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SSA-1099 Disability benefits

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I have a taxpayer that is permanently disabled. She received a SSA-1099 with benefits paid from 2017 to 2019. The taxpayer was injured on the job at the employer's workplace and became permanently disabled as a result. The case was originally referred to workers' compensation. The taxpayer engaged an attorney involving the permanent disability. In the end, the taxpayer is permanently disabled and is receiving disability payments from Social Security. 

The SSA-1099 received for 2019 shows the amounts paid by check, medicare premiums deducted, workers' compensation offset, attorney fees, voluntary Federal withholding taxes as additions and removing the medicare premiums deducted to arrive at the net benefits for 2019.

The taxpayer went to a tax preparer and entered in the Social Security Net Benefits showing up on Page 1. The tax preparer entered in a Schedule A deduction for Medical Insurance for the total amount of the Net Benefits reported on the SSA-1099. 

Is this the proper treatment in this particular case? If not, what is the proper treatment for this particular item for the taxpayer's return? 

My thought is to remove the deduction entered by the tax preparer and take a deduction for the Worker's compensation offset as an above the line deduction, since Workers' Compensation payments are not taxable.

On another side note, are the Attorney fees included in the net benefits considered taxable income? If it's not taxable, then where would that be adjusted?

I cannot find any help on the IRS website and their Telephone hotline is not available due to the shutdown. 

I appreciate any responses to this question. Thank you and stay safe and healthy.

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5 Replies 5
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Level 14

Start with the gross benefit as being subject to tax - up to 85%.

Medicare premiums are allowed as Sch A health insurance.

No deduction for workmans comp or attorney's fees.

Lump sum payments of SS benefits are discussed in one of eof the IRS Publications.


ex-AllStar
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So, the deduction of the entire amount of the gross benefits being deducted on Such A is incorrect and will have to be amended for that. And the only Medical deduction is the medicare premiums. 

Thank you for the clarification about the workmanship comp and the attorney fees. 

What does "eof" mean? 

 

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Level 14

My typing is terrible. "eof" was supposed to be "of".


ex-AllStar
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Level 12

"What does "eof" mean?"

 

It means "bad typing."

On eof

=

One

of

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"Level Up" is a gaming function, not a real life function.
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Thank you very much. 

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