taxes, ltd, ssdi and back pay HELP!

[tejacl]

Ind.

I have searched all over trying to find an answer to this dilemma but have had no luck to date. Husband received SSDI backpay last year, he knows he owes ‘X’ amount back to LTD. However, they are asking for several items that they are not entitled to (lawyer fees, edu incentive, etc) and so far have refused to change any items on the demand letter. He does not want to pay them anything until it is corrected.

Now the dilemma, what in the world do we do about the taxes? The way this is currently headed, we are probably going to have to hire someone to help us address the issue so I do not see it resolved by tax time and it is a new year. I can see this a huge headache if we have to file backpay as income for the last 5 years, then next year or the following year have to amend all the returns to take out the LTD.

Any advice?

 

[LdiJ]

Ind.

I have searched all over trying to find an answer to this dilemma but have had no luck to date. Husband received SSDI backpay last year, he knows he owes ‘X’ amount back to LTD. However, they are asking for several items that they are not entitled to (lawyer fees, edu incentive, etc) and so far have refused to change any items on the demand letter. He does not want to pay them anything until it is corrected.

Now the dilemma, what in the world do we do about the taxes? The way this is currently headed, we are probably going to have to hire someone to help us address the issue so I do not see it resolved by tax time and it is a new year. I can see this a huge headache if we have to file backpay as income for the last 5 years, then next year or the following year have to amend all the returns to take out the LTD.

Any advice?

He should at least pay them the portion that he does not dispute. That would solve the majority of the tax issue.

 

[pinto375]

Ind.

I have searched all over trying to find an answer to this dilemma but have had no luck to date. Husband received SSDI backpay last year, he knows he owes ‘X’ amount back to LTD. However, they are asking for several items that they are not entitled to (lawyer fees, edu incentive, etc) and so far have refused to change any items on the demand letter. He does not want to pay them anything until it is corrected.

You have 2 issues going on here, first is repayment of SSDI overpayment to the LTD, and second is taxes on SSDI benefits.

First: No one should ever voluntarily repay a lumpsum to an insurer for an LTD overpayment out of funds received as retroactive Social Security benefits. Make the LTD recover the SSDI overpayment from future LTD benefits. You should have a lawyer compose a letter and send it to your LTD explaining as much. By doing so it almost ensures that the insurer will continue the you on the claim until the overpayment is repaid. And, when the insurer attempts to terminate only after it has paid itself back, it's a circumstance that would indicate self-dealing and procedural irregularity in any subsequent litigation. Where the insurer has directly taken an active role in your Social Security claim, the factual equities would weigh even more strongly in the your favor.

It might also be a good idea to put the retro SSDI payment in a separate account, completely segregated from any other money, so it never loses its character as Social Security funds. The position that Social Security funds should be segregated and kept separate is appropriate because of the application of §407 of the Social Security Act, preventing any creditor from attempting to collect a debt from identifiable Social Security funds. The in part is based on the application of the Supreme Court decision in Great West v. Knudson:

No. 99-1786: Great-West Life & Annuity Ins. Co. v. Knudson - Amicus (Merits)

You might want to run this by an ERISA attorney, but my thought here is once you pay back the overpayment in a lump sum, you have lost any leverage with the LTD.

 

[testin]

Lump sum election method might help

If the amount actually received DURING those 5 years differed significantly from year to year, you may be able to take advantage of the lump sum election method (described in Publ 915 (2010), page 11). H&R Block used method that to divide my social security lump sum among the four years for which my lump sum covered. One of those years, my income had been so low I did not have to file a return at all. For that year, 0% of my Social Security benefits were taxable, although for the other years, a large percentage of my benefits for those years were taxable,

For three of the years that my lump sum covered, my SS retroactive benefits were about equal.
But using the lump sum election method saved me from having to pay any tax for the portion of the lump sum benefits corresponding to the year I did not have to file, simply because I had virtually no other income for that year, so for that year 0% of my S.S. benefits were taxable.

You can't do this for LTD, but maybe it might help with taxes on the S.S. lump sums.

 

[TheGeekess]

If the amount actually received DURING those 5 years differed significantly from year to year, you may be able to take advantage of the lump sum election method (described in Publ 915 (2010), page 11). H&R Block used method that to divide my social security lump sum among the four years for which my lump sum covered. One of those years, my income had been so low I did not have to file a return at all. For that year, 0% of my Social Security benefits were taxable, although for the other years, a large percentage of my benefits for those years were taxable,

For three of the years that my lump sum covered, my SS retroactive benefits were about equal.
But using the lump sum election method saved me from having to pay any tax for the portion of the lump sum benefits corresponding to the year I did not have to file, simply because I had virtually no other income for that year, so for that year 0% of my S.S. benefits were taxable.

You can't do this for LTD, but maybe it might help with taxes on the S.S. lump sums.

OP has not been back since January. Please don't necropost.