How to Handle Long-term Disability Repayment After SSDI Approval - Tax Implications?

Thanks for the explanation. I've never dealt with this before. Could you clarify how exactly the tax credit would work? Would I need to file amended returns for 2023 and 2024 (the years I received the LTD payments), or is this all handled on my 2025 return when I make the repayment?

You don't need to file amended returns for the previous years. The tax credit method handles everything on your 2025 tax return (the year you make the repayment). The calculation gets a bit complex, but essentially, you'll calculate the tax benefit you would have received had you excluded the repaid income from your previous years' returns. This becomes your credit amount. You'll need to use IRS Form 8833 to document this claim of right repayment. Most good tax software can handle this calculation, but given the large amount involved, you might want to consult with a tax professional to ensure it's done correctly.

Did they help with the actual calculations? I'm in a similar situation but with a smaller amount (about $25k repayment) and I'm worried about getting the math wrong on the credit calculation.

I'm skeptical about these AI tax services. How do you know they're giving accurate advice? Did you verify what they told you with an actual CPA? This sounds like something too complicated to trust to an algorithm.

They definitely helped with the calculations! They showed me exactly how to figure out the tax benefit from prior years and calculate the credit. They even generated a worksheet that I could provide to my tax preparer with all the numbers worked out. As for accuracy, I actually did have my regular accountant review it afterward, and he confirmed their advice was spot-on. He was impressed with the detailed explanation they provided about the claim of right provision. The service uses actual tax professionals alongside their AI to review complex situations like this, so you're not just getting algorithmic advice.

How does this actually work? I've been trying to reach SSA for three weeks about my disability review and keep getting nowhere. Does this service just put you on hold for you or something?

This sounds like BS honestly. Everyone knows you can't get through to SSA without waiting for hours or days. What are they doing, paying off SSA employees? I'd be suspicious of any service claiming they can magically get you through.

It's not a hold service - they use some kind of system that navigates the SSA phone tree and secures your place in line, then calls you when they're about to connect you with a representative. I don't know exactly how their technology works, but it saved me countless hours of frustration. No, they're definitely not paying off SSA employees! They're just using technology to efficiently navigate the phone systems. The SSA representatives I spoke with were regular SSA employees. The service just helps you bypass the busy signals and disconnects that make it so hard to reach someone.

I didn't even think about the premium aspect! Looking back at my paystubs, it looks like the LTD premiums were actually deducted post-tax. Do you know how I would calculate what percentage was taxable? The W-2 from 2023 and 2024 included the LTD payments but I'm not sure how to determine what portion should have been non-taxable.

You'd need to determine what percentage of the total premiums paid for the policy were paid with after-tax dollars. If 100% of the premiums were paid with after-tax money, then none of the benefits should have been taxable. If only a portion was paid with after-tax dollars, then a corresponding percentage of benefits would be non-taxable. For example, if you paid 100% of the premiums with after-tax money, you may have a case to amend your previous returns since those disability benefits shouldn't have been taxed initially. But if your employer paid part of the premiums pre-tax, you'll need to determine the ratio. Your HR department or benefits administrator should be able to provide documentation on how the premiums were handled.

I used TurboTax Premier last year for a similar situation (had to repay about $30k in retirement benefits). It did handle the claim of right calculation, but I had to dig around to find where to enter it. It's not very intuitive in their interface. You definitely need at least the Premier version though, not the Deluxe.

This is really helpful advice about the documentation requirements. I'm curious about the installment payment aspect you mentioned - what if someone negotiates a payment plan with the LTD company? Would you claim the credit proportionally each year as you make payments, or does the IRS allow you to claim the full credit in the first year even if you're paying over multiple years? I imagine the timing could significantly impact the tax benefit depending on your income levels in different years.

Great question about installment payments! Generally, you can only claim the Section 1341 credit for amounts actually paid during the tax year, not for the full amount you've agreed to repay. So if you negotiate a payment plan, you'd claim the credit proportionally each year as payments are made. However, there's an important exception - if you have an enforceable agreement to repay and the amount is fixed, some tax professionals argue you might be able to claim the full credit in the first year. But this is a gray area and the IRS tends to prefer the "actual payment" method. You're absolutely right about the timing impact on tax benefits. If your income varies significantly year to year, it could be worth running projections to see whether a lump sum payment in a high-income year versus spreading it over multiple years would provide better overall tax benefits. The credit calculation looks back at your prior year tax rates, so the benefit per dollar repaid stays the same, but your current year situation affects how much that credit helps you.

This is excellent strategic advice about timing! I hadn't considered how coordinating the repayment timing with other income events could optimize the tax benefit. One question about the state tax implications you mentioned - do you happen to know which states typically don't recognize the federal Section 1341 credit? I'm in California and want to make sure I understand how this might affect my state return. Also, regarding your point about professional consultation - do you have any recommendations for finding tax professionals who specifically have experience with disability insurance repayments? This seems like a pretty specialized area and I want to make sure I find someone who really knows the ins and outs of these situations rather than just a general tax preparer. The amounts involved definitely justify getting expert help, but I want to make sure I'm finding the right kind of expert!

Great questions! For California specifically, you're in luck - CA generally follows federal tax treatment for claim of right repayments, so you should be able to use a similar approach on your state return. However, the calculation might be slightly different since CA tax rates and brackets don't match federal exactly. States that typically don't recognize or have limited recognition of Section 1341 include some that don't have income tax (like Texas, Florida) or have very different tax structures. But most states with income taxes that mirror federal AGI calculations will allow some form of the credit. For finding specialized tax professionals, I'd suggest looking for: 1. CPAs or EAs who specifically mention disability/SSDI experience on their websites 2. Professionals who work with disabled clients or disability attorneys 3. Tax pros who advertise experience with "claim of right" or Section 1341 situations You might also contact your state CPA society for referrals, or check if any local disability advocacy organizations have recommended tax preparers. Some attorneys who specialize in disability law also have relationships with tax professionals experienced in these situations. Given you're dealing with both the LTD repayment AND ongoing SSDI taxation issues, finding someone with this specific expertise will definitely be worth it for the long-term tax planning aspects too.