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Old 05-13-2011, 09:45 AM   #1
jeff216410 jeff216410 is offline
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Join Date: May 2011
Location: CT
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SSDI Award and LTD reimbursement. Getting Screwed?

My wife just won SSDI with back pay to June 2010. She was receiving tax free benefits from LTD the whole time since she paid for the policy with after tax money. Of course LTD wants their money back. I have seen similar posts where replies are 'SSDI might be taxable depending on other income".

1. Her SSDI WILL be taxable at the 28% (federal) rate based on my income. If we owe the whole lump sum amount (for those months payments were received from SSDI and LTD) back to LTD for reimbursement, and we have to pay tax on it first, we will loose 28% of 85% of the amount. Correct?
2. Let's say for round numbers my wife was getting $2500 tax free from LTD. Let's say her SSDI award is $1500, and our daughter who is 1, gets half ($750). That means in theory, the LTD will pay my wife $250 (tax free) and my wife will get the $1500 from SSDI (and pay 28% tax on it)?
3. The $750 my daughter receives... is that taxable? If we use the money to buy food/clothes/supplies etc for her do we have to pay tax on it on top of our income? Or since that is her only income, she (daughter) will not have to pay tax on it because her income is low?

Is the IRS going to penalize us because we underpaid on our 2010 taxes with what was at the time, tax free money, which now got paid back with taxable money we got in 2011 but never paid tax on the money in 2010 or yet in 2011? Not even sure if that made any sense so I'll rephrase that....

A. Got monthly tax free $2500 from LTD all of 2010 and 2011 so far
B. Got SSDI award in may 2011, got lump sum covering back to 2010 around June 2010 when she was eligible
C. LTD wants their money back they paid while she was getting LTD but the money we got from SSDI has not yet had tax paid on it.
D. Seems like 1500x.85x28% is the tax we will loose every month? That's a reduction of $357 a month for federal taxes that we were getting with the tax free LTD payments. So the original $2500 tax free goes down to $2143 a month once SSDI pays and LTD makes up the ($250) difference? I know it's not fair but does this sound right? Thanks in advance for your help!!!

 
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jgrangran (05-13-2011)