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Old 05-13-2011, 09:45 AM   #1
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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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Old 05-13-2011, 11:00 AM   #2
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Re: SSDI Award and LTD reimbursement. Getting Screwed?

I think you get screwed here in a way. Your math looks correct to me.

1. Prior to SSDI total income = your income + LTD
2. After SSDI total income = your income + offset LTD + SSSI - taxes on SSDI

1 > 2 unfortunately

* Not sure how the child's SSDI is treated but I would think SSA would view it as total household income and this would be taxable.

If so, your taxes would be 2250x.85x28% = 535

2250 - 535 + 250 = 1965

*It seems like you are now being taxed on the full LTD amount whereas before it was tax free. I personally don't think they should tax your wife's SSDI b/c of your income no matter how much you are making b/c your wife paid for the SSDI insurance with FICA taxes when she was working. Does not seem quite fair to me.

 
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Old 05-13-2011, 06:16 PM   #3
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Re: SSDI Award and LTD reimbursement. Getting Screwed?

At this point the best thing to do is meet with a tax professional to see what, if anything, needs to be filed to amend past returns or if that will not be required. They can also talk to you about the tax ability of SSDI and child dependent SS benefits. Tax issues are so complex based on everyone's own financial situation.


I too have tax free LTD and may eventually be awarded SSDI retro to possibly 10/2009. My tax person at H&R said we'll tackle that when it happens.
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Old 05-17-2011, 09:42 AM   #4
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Re: SSDI Award and LTD reimbursement. Getting Screwed?

Thanks for the input. It seems like we are going to pay a large chunk for tax so our "tax free" LTD benefit was a waste of time. We will get their $250 tax free. The rest we pay tax to uncle sam. The $535 loss looks correct if I have to pay tax on what our daughter gets. I wonder if we should look into filing our taxes separately? I wonder if the wife has only SSDI income she may not have to pay much tax, if any... and I can use all the deductions against my income and maybe come out good? I'll have to weigh the numbers, but we are looking at having to cough up $5000 to pay the taxes on the lump sum. By right, since we paid extra to get a tax free benefit, the LTD should accept the check from SSDI minus the taxes we have to pay. That would be fair but then they would eat the $5000 in taxes which the insurance company will never do.

 
Old 05-17-2011, 09:55 AM   #5
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Re: SSDI Award and LTD reimbursement. Getting Screwed?

Quote:
Originally Posted by jeff216410 View Post
Thanks for the input. It seems like we are going to pay a large chunk for tax so our "tax free" LTD benefit was a waste of time. We will get their $250 tax free. The rest we pay tax to uncle sam. The $535 loss looks correct if I have to pay tax on what our daughter gets. I wonder if we should look into filing our taxes separately? I wonder if the wife has only SSDI income she may not have to pay much tax, if any... and I can use all the deductions against my income and maybe come out good? I'll have to weigh the numbers, but we are looking at having to cough up $5000 to pay the taxes on the lump sum. By right, since we paid extra to get a tax free benefit, the LTD should accept the check from SSDI minus the taxes we have to pay. That would be fair but then they would eat the $5000 in taxes which the insurance company will never do.
Yeah, that seems fair to me but insurance companies don't always play fair unfortunately. I would definitely look into filing separately versus jointly to see which one most benefits you. Sadly, the tax free LTD is independent of any other non-disability related income but SSDI is not.

 
Old 07-16-2011, 04:15 PM   #6
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Re: SSDI Award and LTD reimbursement. Getting Screwed?

I went down this same road with taxes for ssdi in lieu of nontaxable disab payments I bought with after tax dollars. You declare the reimbursement of ssdi as income in the year you receive it and pay taxes if any that year. The disab co will expect reimbursement for any family member receiving gov benefits so daughters money is reduced too.
This is a HUGE scam by disability insurers and they are costing the government billions of dollars at the expense of working taxpayers who paid for benefits with after tax dollars. I could not get the insurer tp pay to me the gap amount between what insurance owed but was now going to taxes.
Please write your Congressman and Senatos about this issue. It could get a gov benefit back in the hands of the disabled and away from the greedy rich insurance companies who collectedvpremium with after tax dollars and have no intention of paying benefits in full to thevdisabled insured.

 
Old 07-16-2011, 04:45 PM   #7
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Re: SSDI Award and LTD reimbursement. Getting Screwed?

Not all LTD plans offset individual and family SSDI, some plans only offset individual. Anyone covered by STD and/or LTD should request from HR/Benefits a copy of the exact plan under which they are covered. The lucky few have LTD, many employees don't.

If LTD were not offset by SSDI benefits the cost of LTD would increase exponentially and many employers would cease offering the benefit. The premium cost for LTD is calculated by underwriters with a variety of factors, one of which is the actuarial estimate of the potential SSDI awards which reduce what LTD will pay out.

SS is aware that SSDI is deducted from group employer LTD. The government has no say/impact in how LTD plans are written.

Anyone who has LTD is very fortunate, we see many here who loose homes and cars, etc, as they don't have LTD to hold them over until SSDI is approved. LTD is not a public or government benefit. An option, before ill or injured, is to take out a personal individual disability policy as the benefit is NOT deducted from LTD. The extra $800/mo I get from my indiv policy I paid $400/yr for is so worth what I spent on the 15 yr of premiums.

The federal government doesn't see the offset of SSDI from LTD to be any type of scam. If people who had LTD also got their full SSDI they'd often be making more per month by not working and that would be a scam. Then the amount of people going out of work and claiming SSDI and LTD would be huge, therefore slowing down SS processing times and significantly increase LTD premiums. Another factor in premium calculation is the amount of LTD $ being paid out vs premium $ coming in.
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Old 07-16-2011, 05:13 PM   #8
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Re: SSDI Award and LTD reimbursement. Getting Screwed?

Quote:
Originally Posted by SpineAZ View Post
An option, before ill or injured, is to take out a personal individual disability policy as the benefit is NOT deducted from LTD. The extra $800/mo I get from my indiv policy I paid $400/yr for is so worth what I spent on the 15 yr of premiums.
$400/year is not bad for the individual policy Spine. $400/year/12 months = $33/month. My premium for my group LTDI policy was about as much. I was having $15 deducted from from paycheck post tax every two weeks for the benefit. Employees paid the total cost for this benefit. $15/ 2 weeks x 26 pay periods per year = $390/year in premiums for this group policy. My company did offer a better group policy than most. There is no 2 year limit on mental health and some other unique provisions that is not seen with most typical group LTD policies.

Last edited by BlueSkies14; 07-16-2011 at 05:16 PM.

 
Old 07-16-2011, 05:26 PM   #9
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Re: SSDI Award and LTD reimbursement. Getting Screwed?

Quote:
Originally Posted by Fudge44 View Post
I went down this same road with taxes for ssdi in lieu of nontaxable disab payments I bought with after tax dollars. You declare the reimbursement of ssdi as income in the year you receive it and pay taxes if any that year. The disab co will expect reimbursement for any family member receiving gov benefits so daughters money is reduced too.
This is a HUGE scam by disability insurers and they are costing the government billions of dollars at the expense of working taxpayers who paid for benefits with after tax dollars. I could not get the insurer tp pay to me the gap amount between what insurance owed but was now going to taxes.
Please write your Congressman and Senatos about this issue. It could get a gov benefit back in the hands of the disabled and away from the greedy rich insurance companies who collectedvpremium with after tax dollars and have no intention of paying benefits in full to thevdisabled insured.
How much LTD benefit are you receiving now Fudge44 after the SSDI offset? How long have you been on LTD? How did the transition from "any" to "own" occ go? Spine made some very good points. Those of us lucky enough to have LTD while we wait on SSDI to kick in are very fortunate.

Last edited by BlueSkies14; 07-16-2011 at 08:34 PM.

 
Old 07-18-2011, 05:13 AM   #10
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Re: SSDI Award and LTD reimbursement. Getting Screwed?

[QUOTE=SpineAZ;4801531]Not all LTD plans offset individual and family SSDI, some plans only offset individual. Anyone covered by STD and/or LTD should request from HR/Benefits a copy of the exact plan under which they are covered. The lucky few have LTD, many employees don't.

If LTD were not offset by SSDI benefits the cost of LTD would increase exponentially and many employers would cease offering the benefit. The premium cost for LTD is calculated by underwriters with a variety of factors, one of which is the actuarial estimate of the potential SSDI awards which reduce what LTD will pay out.

SS is aware that SSDI is deducted from group employer LTD. The government has no say/impact in how LTD plans are written.

Anyone who has LTD is very fortunate, we see many here who loose homes and cars, etc, as they don't have LTD to hold them over until SSDI is approved. LTD is not a public or government benefit. An option, before ill or injured, is to take out a personal individual disability policy as the benefit is NOT deducted from LTD. The extra $800/mo I get from my indiv policy I paid $400/yr for is so worth what I spent on the 15 yr of premiums.

The federal government doesn't see the offset of SSDI from LTD to be any type of scam. If people who had LTD also got their full SSDI they'd often be making more per month by not working and that would be a scam. Then the amount of people going out of work and claiming SSDI and LTD would be huge, therefore slowing down SS processing times and significantly increase LTD premiums. Another factor in premium calculation is the amount of LTD $ being paid out vs premium $ coming in.[/It's not really a problem that there is an offset of SSDI from LTD because obviously people would never return to work if they collected 2 checks. The problem is with the TAXES. When paying extra to receive a tax free benefit; one expects to receive the same amount of money on LTD or on SSDI with offset LTD. In our particular case we went from receiving $2500 a month tax free to receiving a total of $1838 from SSDI and LTD combined. That is a loss of $662 a month. How is that fair? I believe the LTD company should pay the balance to make the person whole for what they were receiving. My wife would have been better off filling out here SSDi application in such a way they she got rejected, and therefor would collect LTD for life tax free. This is not to mention the $5000 in taxes we had to come up with to pay taxes on the SSDI money that just got sent to LTD. LTD did not loose a penny, but we had to come up with $5000. My accountant said ***? because the payment went from tax free to taxable and there was no way around it. It's just wrong.

 
Old 07-18-2011, 05:50 AM   #11
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Re: SSDI Award and LTD reimbursement. Getting Screwed?

Is your wife's LTD benefit for the remainder of her life? When I 1st started working in industry many years ago, I remember the LTD paying a lifetime benefit. Now, this is very rare to see. Most group and indiv. LTDI will usually pay to age 65 or 2-5 years as long as the claimant is considered disabled by the insurance company.

 
Old 07-18-2011, 08:47 AM   #12
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Re: SSDI Award and LTD reimbursement. Getting Screwed?

Often LTD claims are more secure, meaning ongoing payment from LTD, once SSDI is approves. I'm not understanding $600 less o'er month.

My LTD is tax free. My SSDI , if awarded, may be taaxable. But LTD remains non taxable. I realize I may have to he taxed on SSDI but that's fine. My hubby works but given his income level we'll annually owe some taxes. The more income the spouse makes the higher th tax bracket when SSDI is approved. If my accountant told me $600/mo taxes I'd get a second opinion. The max SSDI benefit is around $2400/mo so it could not be taxed that heavily unless the spouse makes significant amount of income. If my spouse made a high income I wouldn't care what LTD or SSDI paid me.

SSDI pays until SSNRA (SS Normal Retirement Age) and my LTD does as well. I was born in 1966 so my SSNRA is age 67.
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Last edited by SpineAZ; 07-18-2011 at 08:57 AM.

 
Old 07-18-2011, 09:42 PM   #13
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Re: SSDI Award and LTD reimbursement. Getting Screwed?

It is all very confusing. I am having kind of the same problem. I received a lump sum check from Worker's Comp for an elbow injury. Nothing related to my permanent disability (back and narcolepsy). SSDI withheld $6100.00 of my back pay. My comp lump sum was $12,125.00. My attorney said they base it on your last year of salary. If the $12,125.00 was more then a percentage then I pay back to SSDI. They say you can't receive both. I assume it is the same with LTD. But my lawyer and someone from SSA told me that they probably should not have withheld the $6100.00. Last summer the computer showed I owed that amount and they stopped my check and my son's checks for months. SSA told me to send an appeal letter. I got back money but they never audited the account as I requested. The $6100.00 apparently is in a separate fund and not all employees can view it. So it is going on two years and I am still fighting to see if I really owe that money or do they owe to me. I dont' even know if they gave me back all the money they took in error last summer. No way to figure it out. In October I went to SSA and sat there 3 hours to be told they can't view all financial records. It is like beating your head against the wall. Don't give up until you get the correct answer.

Last edited by hessie28; 07-18-2011 at 09:44 PM. Reason: spelling

 
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