LdiJ
Senior Member
I am researching the tax treatment of disability repayments from lump sum SSDI backpay under the new tax laws and I have having a problem finding a clear answer. The old tax laws were clear but the new ones are not.
So the situation is that the taxpayer has been receiving employer based disability payments for the last couple of years, which were treated as taxable income and he paid tax. He has now been approved for SSDI and received a lump sum backpay, which he had to use to repay the long term disability company.
I have not been able to find anything that addresses this scenario directly, but I did find, in Publication 525, that you could either deduct or take a credit for repaid income if you included the income under a claim of right and it was more than $3000. However, again, no where can I find anything that specifically includes disability as a payment that falls under "claim of right". "Claim of right" is defined as "that as of the time you included the income on your return, it appeared that you had an unrestricted right to it." The taxpayer knew that if he was approved for SSDI and got lump sum benefits, that he would have to pay back the disability company, so does that preclude it being income under a claim of right?
Assuming that it was income under a claim of right, Publication 525 was also clear that if you took a deduction it would be on line 16 of Schedule A. I cannot find however, anywhere on the 1040 and its schedules where you can take the credit instead. Publication 525 tells you how to figure the credit, but not where to put it on the return and I cannot find a spot that seems applicable on the return itself, and no where in our software either.
Has anyone dealt with repayment of disability benefits under the new tax laws?
So the situation is that the taxpayer has been receiving employer based disability payments for the last couple of years, which were treated as taxable income and he paid tax. He has now been approved for SSDI and received a lump sum backpay, which he had to use to repay the long term disability company.
I have not been able to find anything that addresses this scenario directly, but I did find, in Publication 525, that you could either deduct or take a credit for repaid income if you included the income under a claim of right and it was more than $3000. However, again, no where can I find anything that specifically includes disability as a payment that falls under "claim of right". "Claim of right" is defined as "that as of the time you included the income on your return, it appeared that you had an unrestricted right to it." The taxpayer knew that if he was approved for SSDI and got lump sum benefits, that he would have to pay back the disability company, so does that preclude it being income under a claim of right?
Assuming that it was income under a claim of right, Publication 525 was also clear that if you took a deduction it would be on line 16 of Schedule A. I cannot find however, anywhere on the 1040 and its schedules where you can take the credit instead. Publication 525 tells you how to figure the credit, but not where to put it on the return and I cannot find a spot that seems applicable on the return itself, and no where in our software either.
Has anyone dealt with repayment of disability benefits under the new tax laws?