Social Security overpayment affecting taxes even though it was repaid

[MelindaS909623]

Hello,

In 2016, I was overpaid by social security for a disability by about $13,000. I could not stop the overpayments or repay them until my information was processed by the social security adminisitration. In the meantime, my taxes were due for 2016. I had to claim the $13,000 income but just shortly after filing the taxes, we repaid the amount in full. But taxes were paid on the overpayment for 2016. In 2017 when I finally get the notice showing my repayment, there was minimal amount that could be applied to 2017 taxes so in essence we paid taxes on about $13,000 on income we did not and could not keep. Can we refile taxes for 2016 and show it was repaid but in the next year and get our money back or what? How do you get the taxes back? Especially since we did not benefit from the overpayments. They sat in a bank account until they could be repaid. Did we just lose a lot of money?? Help!

Thanks

Desperate for help in Nevada

[GailL1]

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@MelindaS909623 wrote:

Hello,

In 2016, I was overpaid by social security for a disability by about $13,000. I could not stop the overpayments or repay them until my information was processed by the social security adminisitration. In the meantime, my taxes were due for 2016. I had to claim the $13,000 income but just shortly after filing the taxes, we repaid the amount in full. But taxes were paid on the overpayment for 2016. In 2017 when I finally get the notice showing my repayment, there was minimal amount that could be applied to 2017 taxes so in essence we paid taxes on about $13,000 on income we did not and could not keep. Can we refile taxes for 2016 and show it was repaid but in the next year and get our money back or what? How do you get the taxes back? Especially since we did not benefit from the overpayments. They sat in a bank account until they could be repaid. Did we just lose a lot of money?? Help!

Thanks

Desperate for help in Nevada

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Let's make sure that you paid (any) tax on your SSDI benefit in 2016 because it is figured differently than regular income.  A person ONLY pays tax on their SS or SSDI if they have income of over $ 25,000 ( $ 32,000 if filing MFJ ).

So on your 2016 Form 1040 or equivalent, look at Lines 20a and 20b.

On Line 20a, you should have listed the total amount which SSA reported to you on the (2016) 1099 SSA.  A worksheet calculation is then performed based on your other income to figure what part of your SS benefit, if any, is going to be added into your income for that year.

The worksheet shows how the tax, if any,  is figured based on your income and then ONLY a portion is taxed either 50% or 85% of it depending upon your other income. 

IRS - 2016 SS Benefit Worksheet

IF line 20b on your 2016 Form 1040 shows nothing or '0' then you didn't pay any tax on any of the SSDI benefit.

Look this up and see if you have any benefit amount that came from the worksheet and entered on Line 20b of your 2016 Form 1040 or equivalent.

If NOTHING is on line 20b of your 2016 Form 1040, then NONE of your SS benefit was taxed and thus there is no need to do anything.

If there IS an amount listed on line 20b of your 2016 Form 1040, what is it and we will try to go from there -

[MelindaS909623]

Hello,

Yes, I am aware that the taxes are calculated differently. I am married and my spouses income would increase the taxes that are owed. We definitely paid taxes on the amount in 2016. I did get the form showing that I had repaid the amount owed. So in 2017, I expected to get full credit for the amount repaid but instead I only got a tiny amount because I do not know how to claim the almost $11,000 that I could not get credit for in 2017.

It seems like I should be able to file an amended return for 2016 showing that the $13,000 was repaid in 2017 and that it was not truly income. But, I don't know if that is legal. I would also have to adjust 2017 to reflect the correct amounts. It makes no sense that you would have to pay taxes money that you do not keep.

Publication 915 from the internal revenue services explains what to do when you receive a credit from social security, It explains that you might have a negative figure on page 15 of Publication 915. It then explains that you claim zero as taxable for the year if it is a negative figure. Which would be fine if the amount was small but my amount was thousands of dollars! It never explains anything else and tells you to contact Social Security if you have questions. If you try contacting social security or the Internal Revenue Service - they don't know the answers! In fact even the IRS does not explain laws anymore. You can hire someone to help but how do you pay for that??? It is craziness.

Thanks for the help!

[GailL1]

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@MelindaS909623 wrote:

Hello,

Yes, I am aware that the taxes are calculated differently. I am married and my spouses income would increase the taxes that are owed. We definitely paid taxes on the amount in 2016. I did get the form showing that I had repaid the amount owed. So in 2017, I expected to get full credit for the amount repaid but instead I only got a tiny amount because I do not know how to claim the almost $11,000 that I could not get credit for in 2017.

It seems like I should be able to file an amended return for 2016 showing that the $13,000 was repaid in 2017 and that it was not truly income. But, I don't know if that is legal. I would also have to adjust 2017 to reflect the correct amounts. It makes no sense that you would have to pay taxes money that you do not keep.

Publication 915 from the internal revenue services explains what to do when you receive a credit from social security, It explains that you might have a negative figure on page 15 of Publication 915. It then explains that you claim zero as taxable for the year if it is a negative figure. Which would be fine if the amount was small but my amount was thousands of dollars! It never explains anything else and tells you to contact Social Security if you have questions. If you try contacting social security or the Internal Revenue Service - they don't know the answers! In fact even the IRS does not explain laws anymore. You can hire someone to help but how do you pay for that??? It is craziness.

Thanks for the help!

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Yes, look at IRS Publication 915 - 1st on page 5 under the heading of Repayment of Benefits.    It gives an example - the simplest example - your return sounds more complicated because of the repay amount, which is covered later in the publication.

IRS Publication 915

On page 15 under Repayment of benefits received in an earlier year.  It explains how to handle  Repayments More Than Gross Benefits 

which seems to be your case.

It tells you how to claim all of it depending upon how much it is and the different ways to handle whether the (negative) amount (repaying back old amount which is more than current year benefit ) is less than $3,000.   OR.  over $3,000.

So there is a way to cover all of the repay amount and this is it.

Instructions seem pretty (IRS) clear but if you are not use to IRS lingo and forms, you could get lost.  It also says you can contact your local SS office. Have you tried that contact?

If your local SS office can't help you ( I am not holding my breath for this), then you need tax help - perhaps a tax professional or an enrolled agent to help you complete this part of your return.

[MelindaS909623]

Hello,

The only way to talk with a local person at the social security office is to stand in line for several hours and then hope that you get someone that can answer your question. In order to get off of the disability that I was receiving, I had to go to work. I have to work when social security is open. Its not a good option from what I have observed with my local office because they seem clueless if it is not a simple question.

I have talked to several tax prepares. They seem to have different opinions. HR Block said that I could do an amended return but others have said oh well, you can't get it back.

This is nuts. Now we penalize people for trying their best to work hard and do the right things because the tax laws are getting so complex that you can't get the IRS to answer their own questions and the tax people don't know answers to uncommon questions. So should I pay someone to try and get my money back when I don't even know how much money I might get? What if their solution is wrong and the IRS comes after me?

Thanks

Desperate in Nevada

Mindy Simons