You may be entitled to deduct certain amounts related to the benefits you receive.
Disability payments.
You may have received disability payments from your employer or an insurance company that you included as income on your tax return in an earlier
year. If you received a lump-sum payment from SSA or RRB, and you had to repay the employer or insurance company for the disability payments, you can
take an itemized deduction for the part of the payments you included in gross income in the earlier year. If the amount you repay is more than $3,000,
you may be able to claim a tax credit instead. Claim the deduction or credit in the same way explained under Repayments More Than Gross Benefits,
later.
Legal expenses.
You can usually deduct legal expenses that you pay or incur to produce or collect taxable income or in connection with the determination,
collection, or refund of any tax.
Legal expenses for collecting the taxable part of your benefits are deductible as a miscellaneous itemized deduction on line 22,
Schedule A (Form 1040).
Repayments More Than Gross Benefits
In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross
benefits (box 3) you received. If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your
benefits will be taxable. If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of
another form for that same year.
If you have any questions about this negative figure, contact your local SSA office or your local U.S. RRB field office.
Joint return.
If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5, but your spouse's does
not, subtract the amount in box 5 of your form from the amount in box 5 of your spouse's form. You do this to get your net benefits when figuring if
your combined benefits are taxable.
Example.
John and Mary file a joint return for 2001. John received Form SSA-1099 showing $3,000 in box 5. Mary also received Form SSA-1099 and
the amount in box 5 was ($500). John and Mary will use $2,500 ($3,000 minus $500) as the amount of their net benefits when figuring if any of their
combined benefits are taxable.
Repayment of benefits received in an earlier year.
If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction
for the part of this negative figure that represents benefits you included in gross income in an earlier year.
If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous
itemized deductions. Claim it on line 22, Schedule A (Form 1040).
If this deduction is more than $3,000, you should figure your tax two ways:
- Figure your tax for 2001 with the itemized deduction included on line 27 of Schedule A.
- Figure your tax for 2001 in the following steps.
- Figure the tax without the itemized deduction included on line 27 of Schedule A.
- For each year after 1983 for which part of the negative figure represents a repayment of benefits, refigure your taxable benefits as if your
total benefits for the year were reduced by that part of the negative figure. Then refigure the tax for that year.
- Subtract the total of the refigured tax amounts in (b) from the total of your actual tax amounts.
- Subtract the result in (c) from the result in (a).
Compare the tax figured in methods (1) and (2). Your tax for 2001 is the smaller of the two amounts. If method (1) results in less tax, take
the itemized deduction on line 27, Schedule A (Form 1040). If method (2) results in less tax, claim a credit for the applicable amount on line 65 of
Form 1040 and write "I.R.C. 1341" in the margin to the left of line 65. If both methods produce the same tax, deduct the repayment on line 27,
Schedule A (Form 1040).
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