Social Security Repayment

[Corduroy Frog]

Client became disabled and received $35K in a lump sum payment from Social Security.  He received  a form SSASM-1099 (not a SSA-1099).  After he received the money, he had to pay this back to his insurance company, who was paying him sick pay.  Bos 4 (repayments) shows zero.  Drake input screen has no allowance to enter anything for Box 4, but it has a comment (inaccessible) which states that a repayment will cause the benefits to not affect the tax return.

Drake representative told me the repayment should be shown on Schedule A as a "miscellaneous" deduction.  That does little good as the client would not be able to itemize.

Anyone using Drake tell me how to get rid of the taxability of Social Security on my client's return?

I appreciate any help.  Don't believe this is a tax issue, but a software issue.  Messy situation.

Thank you in advance.

 

 

[Terry D EA]

At the top of the 1099SSA screen there is a blue link "Lump Sum" By your post, not sure if this is what you are looking for or not.

>>>>>>Anyone using Drake tell me how to get rid of the taxability of Social Security on my client's return?<<<<<<< is there any other income that is being used to determine the amount of SS to include in gross income? I don't believe the SS by itself is triggering a tax as it is not taxable.

Box 4 is for SS benefits repaid to SS from overpayments which is why the Drake statement. The Drake rep is correct that if the repayment was for "sick pay" then that would be deductible on Sch A in the medical benefits section. I think this is what you may be asking.

[jklcpa]

Drake rep is partially correct, as far as it went, but there is more to it and another choice to consider.

Concerning the repayment of the sick pay: if the taxpayer believed he had the right to the funds when paid and it exceeds $3,000, then in the year of repayment, then he can take the better of these 2 choices:

• either take the repayment as a deduction on Sch A line 16 "Other itemized deductions (not the medical section) OR
• calculate a credit

The credit is calc'd by going back to the year(s) he received the sick pay and recalculating the tax liability on that return without the portion that was ultimately repaid for that year, using the rates that were in effect at that time. Compare the original tax liability (with the sick pay) to the tax you are now calculating that excludes the portion repaid for that year. The difference between the two amounts is the credit.

This is covered in Pub 525 on page 37. It is in the section about repayments over $3K of income under a claim of right. IRC Sec 1341. 

[Corduroy Frog]

Thanks to Terry and Judy.  The choice of a credit was not explained, and that will result in a better situation.  In Tennessee where there is no income tax, it is somewhat rare that people can take the standard deduction.  Even though they may itemize $29,301, they only get the benefit of a $1 deduction.

[jklcpa]

If claiming the credit it should be on Schedule 3, part II, line 13(b)

[Corduroy Frog]

Thank you Judy - Drake has not figured out how to populate Schedule 3, Part II, Line 13(b).  Don't know what's up with them.

[jklcpa]

1 hour ago, Corduroy Frog said:

Thank you Judy - Drake has not figured out how to populate Schedule 3, Part II, Line 13(b).  Don't know what's up with them.

Really? If you call Drake's support line and ask where to enter input for an entry to show up on this Sch and line, any one of them should be able to answer such a simple question. You know it isn't going to do calculations for you, right?  You have to do all of that yourself. I'd attach an explanation of the the year(s) involved and how this credit was calculated. 

Open the individual return and look for input screen 5 "Taxes, Credits, and Payments" on the left side of the first main screen when you open a return.  Open input screen 5 and enter the credit you have calculated on Part 3, line 13(b) near the bottom of that screen. That line has the title "Credit for repayment of amounts included in income from earlier years (sec 1341)."

[Corduroy Frog]

Judy, worked like a charm.  Don't know why no one at Drake could answer this.  They should pay you for their own Customer service.