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Author: Fletch52 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Social Security Disability lump sum received Date: 3/1/2009 2:09 PM
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Fools: I have a client for whom I help with financial matters. In 2005 she filed for disability with Social Security. She received her settlement in 2008. All along the intervening years she received a monthly amount from Aetna with whom she had an insurance policy. This money was declared as income each year.

Now when she received this large settlement in 2008 she had to repay about $23,000 to Aetna and had to give $5,300 to her lawyer. In fact the lawyers funds when directly to him.

However her box 5 on her SSA-1099 shows about $31,000 which includes the $5,300 for the lawyer plus the amount she had to repay Aetna. Can she deduct these two amounts on her return?

Looking back she filed for disability not for herself but for Aetna but she is the one on the hook for the taxes.

Any and all information would be greatly appreciated.

Fletch52
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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 104896 of 121219
Subject: Re: Social Security Disability lump sum received Date: 3/1/2009 9:46 PM
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This is a "claim of right" issue. I'd suggest doing a google search on that term and collecting up a bit of information that way.

But in short, she can either deduct the repayment as an itemized deduction, or can do a special income tax calculation. It's usually better to do the special tax calculation.

--Peter

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