Do I have to pay tax on my SSDI overpayment if I already paid tax on the disability insurance benefits for the same period of time?

As disability insurance attorneys we are not qualified to give any tax advice. Some disability claimants are taxed on the disability benefits that they receive each month. What happens when a disability claimant is approved for SSDI and then the disability carrier demands a repayment for the gross pre-tax disability benefits that have already been taxed? In this scenario the claimant is now being faced with having already paid tax on the disability insurance benefits and having to pay tax on the SSDI benefits as well.

We reached out to Gary Kaplan, a certified public accountant to provide some general information on this issue. If you have specific tax questions we suggest you contact an accountant.


Is there any tax relief for repayment of previously taxed disability payments?

Hypothetical Facts

Mr. Samson received monthly long-term disability benefits for 2.5 years (July 2008 – December 2010). Since he originally paid disability insurance premiums with pre-tax dollars, Mr. Samson’s disability benefits were taxable in the 3 prior years when he received the money. On January 1, 2011, Mr. Samson was finally awarded retroactive Social Security benefits for the 2.5 prior years. He is now required to pay the gross amount (i.e. before-tax) of disability benefits back to the disability insurance company, even though he already paid tax on those benefits.

Law And Analysis

Under Section 1341 of the Internal Revenue Code, if an item was included in gross income for a prior taxable year (years) because it appeared that the taxpayer had an unrestricted right to such item, a deduction is allowable for the taxable year because it was established after the close of such prior taxable year (years) that the taxpayer did not have an unrestricted right to such item or to a portion of such item.

Tax treatment will occur in the tax year of repayment, and will depend on the amount repaid.

A. Repayment of $3,000 or less: The taxpayer must deduct the gross amount of disability income repaid in the current year as a miscellaneous itemized deduction on Schedule A, subject to the 2% of Adjusted Gross Income (AGI) limitation. Note that if the taxpayer does not itemize, or the repayment is less than 2% of AGI, there will be NO relief for taxes paid in any prior year.

B. Repayment over $3,000: There are two options available that can be used. One must compare the effects of treatment in both options; the taxpayer can use the one that results in the least overall tax effect:

  1. Current year treatment: Deduct the gross amount of disability income repaid in the current year as a miscellaneous itemized deduction, as described in (A) above.
  2. Prior year treatment: Recompute the tax for each prior year as if the disability income had not been reported that year. The difference between the recomputed tax and the actual tax can be claimed as a tax credit on the current year’s 1040.

Mr. Samson repaid $15,000 in 2011 that he previously included as income on his 2008 – 2010 income tax returns. He figures what his tax benefit would be under each available option:

  1. A 2011 miscellaneous itemized deduction: Net tax benefit = $3,400.
  2. The sum of credits for 2008, 2009 & 2010 recomputed income tax if disability income payments received were not included in taxable income in each respective years: Net tax benefit = $3,750.

Mr. Samson would choose option 2, which has the greater net tax benefit. He would enter $3,750 as a tax credit on his 1040 return for 2011.


Taxpayers who repay over $3,000 previously tax gross disability income can recoup up to all prior tax paid, depending if an itemized deduction or a credit for prior year taxes will result in the least amount of tax in the current year. Taxpayers repaying $3,000 or less in the current tax year can only recoup any prior tax paid if they itemize and the repayment is more than 2% of AGI.

This case study does not consider the tax treatment of Social Security disability payments, or other issues that may affect your particular situation. Tax planning for disability payments and other complex issues should be made with the help of an experienced tax professional.

If you have specific questions about tax issues related to disability insurance, Gary Kaplan can be reached at 866-643-3560 or by visiting his website at

Comments (31)

  • MJ, congrats on the approval. In this situation, the insurance company should give you tax documentation showing what was paid and any recoupment paid back to assist you in correctly filing your taxes and not being overcharged for such. And yes, if SSDI benefits are approved, you will have to pay back any overpayment from back pay received from the SSA. We are always available for a free consultation, so please do not hesitate to reach out to us.

    Alex Palamara May 15, 2021  #31

  • Off work since 3/13/20. Received STD starting 6/10/20 ending 12/2020. LTD approved in Dec beginning 9/10/20 after 180d elimination period. Gross Benefits $12,816.24 less STD overlap $4102.21. Check issued for difference. Am I entitled to any recoupment for tax year 2021? Pending decision on SSID, if approved will I have to pay back again?

    MJ May 15, 2021  #30

  • Barbara, unfortunately as disability insurance attorney we are not qualified to give any tax advice. Tax planning for disability payments should be made with the help of an experienced tax professional.

    Alex Palamara Mar 29, 2020  #29

  • How would I claim my SSID award that is being recouped and offset by my disability company on my 2020 tax return? They are recouping 43K for which I already paid taxes on through my disability company.

    Barbara S. Mar 29, 2020  #28

  • Travis, you would have to contact your insurance carrier to see if they will give you a credit for the amount you reimbursed them as technically you did not receive that disability income.

    Rachel Alters Feb 12, 2020  #27

  • I received LTD through my employer starting January 1 of 2019. Was approved for SSDI the end of Mach of 2019. I had to send LTD insurance company offset difference, which I understand those rules to the claim awarded. My W-2 from LTD insurance company does not reflect or show reimbursement made to them, shouldn’t there be an offset to have that deduction or credit for that repayment of distributions. The offset was 10,058.00 dollars.

    Travis C. Feb 12, 2020  #26

  • Nichole, the offset provision in the Group Policy dictates what the carrier can/will offset for. Many policies include an offset for minor dependents that are eligible for and receive SSDI benefits as a result of the disabled parent’s disability. You should request a copy of the Policy to confirm the offset provision includes this language. If it does, unfortunately the overpayment would be payable.

    Jay Symonds Jun 26, 2018  #25

  • My husband received employer paid LTD benefits from The Hartford. We live in North Carolina. The amount was based on his earnings, and having a dependent child did not increase what he received. This past year he was awarded SS Disability. During a meeting we requested with a SSA representative, we were discussing having a minor dependent and my husbands SSD was increased due to having a minor child in our home. WHen we received his backpay (6 full months after his SSD was granted), they included the dependent benefits to a tune of over $74,000. $26,000 of that was my sons benefit. Is that legal? We have no problem paying back the overpayment for my husband but it just does not feel right them taking my son’s as well since Hartford never paid us money for him. You thoughts or advice? Thanks so much!

    Nichole Jun 25, 2018  #24

  • Chris,

    This is a question that needs to be addressed by your accountant as this is not my specialty and therefore, unfortunately, I cannot give you advice regarding your tax inquiries.

    Rachel Alters Feb 3, 2018  #23

  • I received my lump sum from SSI which went direct to my LTD carrier. Now I received my w4 from LTD and benefit statement from SSI so should I reduced the amount on my SSI statement to reflect the amount that went to LTD so I won’t pay my taxes twice?

    Chris Feb 2, 2018  #22

  • Linda, you will need to consult with an accountant or other tax professional in order to determine how the information is to be reported.

    Stephen Jessup Apr 10, 2017  #21

  • I was receiving LTD thru previous employer from 2012 to present and was approved for SS Disabilty with a back payment from June of 2014 which is being paid back to LTD. My LTD was being taxed so was filed as income on my 2014 and 2015 taxes. My SS Disability overpayment was not taxed. How do I figure taxes this year since I have already paid taxes on LTD without paying again on my SS Disabiliy Overpayment?

    Linda Apr 6, 2017  #20

  • Tboo, we would recommend that you ultimately consult with an accountant or tax professional to best advise how to report the income for tax purposes.

    Stephen Jessup Feb 13, 2017  #19

  • My mom was receiving long term Disability from her work started in 2014. Fall of last year she was awarded Social Security. She was awarded a lump sum amount for retro payments from 2012-16. She received a small portion of the lumpsum amount and the rest was paid directly back to the LTD carrier. She received a tax document stating all was paid to her. If I read the above correctly, she can write off the amount that was paid back to the LTD company in the Misc section of her itemized taxes. She received W2’s from the LTD company for the years that she was covered.

    Tboo Feb 8, 2017  #18

  • I stared short term disability in August and supplies for ssdi. In may I was approved for see I as of February. In May I went I on Ltd, having at tax withhold and the additional funds partying back my Ltd. My problem jus I was told I would never Have to repay my std, but now the company jus calling for repayment. Do I have to repay? Can I pay on my own timetable? What could happen if I don’t pay?

    Sharon Jan 27, 2017  #17

  • J, who is requesting the money? The Social Security Administration? If so, you will need to consult with a social security attorney.

    Stephen Jessup Jun 27, 2016  #16

  • My father was getting social security disability and he was also getting money for me and my siblings now as says I was overplayed and I am responsible but I was a child and my parents were getting the check. Am I responsible to pay it back?

    J Jun 22, 2016  #15

  • Evelyn,

    Unfortunately the best advice we can give you is to speak with an accountant to determine what can be done with the tax liability.

    Stephen Jessup Nov 18, 2015  #14

  • I received an overpayment in SSDI benefits which I need to pay back. With that said, the IRS taxed me on SSDI overpayments ($4500) but this money I will be paying back to SSDI. It appears that I will be paying the $4500 twice. Any advice/information you can share.

    Thank you!

    Evelyn Nov 17, 2015  #13

  • Help with Taxes,

    The policy most likely requires you to apply for dependent social security benefits. Failure to do so could result in them estimating the award amount and reducing your benefit by same. MetLife has a right to assert the full overpayment about regardless of tax burden. As we are not accountants or tax attorneys we would not be able to provide any advice or information as to how this will all be reflected on your tax filings.

    Stephen Jessup Jun 16, 2015  #12

  • I am receiving LTD disability, and know that MetLife, my LTD carrier, can request all SSDI backpay. My problem is that when I finally received my SSDI backpayment, they withheld $20K in taxes, which is reasonable given my husband’s income.
    MetLife now wants me to pay them that $20k immediately. Because my LTD was paid for after taxes, it is tax free, so they argue that they are not liable for my tax burden, and that the withholding was “voluntary”. I argue it is not voluntary, as it is legitimate money I unforunately owe Uncle Sam, and by not withholding it would have been hit with more penalties for not estimating withholdings well enough.
    My question is: Is MetLife entitled to the full amount (gross) of backpay, or only the net amount after my tax burden? Since my receiving SSDI is something they required of me, I don’t feel that I should be penalized for the tax burden.
    Also, they are now pressuring me to apply for my children’s benefit under my disability. I have absolutely no desire to do this, and am wondering if they can force me to? It will cause a $15K liability similar to the one above. Shouldn’t they be willing to compromise and not make it worse for me? Can I be forced to receive the additional benefit, and if I choose not to apply, can they penalize me anyway?

    Help with Taxes Jun 15, 2015  #11

  • Linda,

    You will need to consult with a tax professional/accountant as to the tax ramifications. Additionally, you may want to consult with a Social Security attorney as to the repayment/overpayment.

    Stephen Jessup Apr 25, 2014  #10

  • I collected SSDI for 8 years and decided I couldn’t afford to live on this alone. I got a full time job, notified social security numerous times but they continued to send me monthly checks. Of course I spent them because I had read that social security will continue to pay for nine months after returning to work. They finally stopped after receiving 20,000.00+. I believe that year my taxes were affected. I am paying back at 50.00 a month, can I get any tax deduction for this?

    Linda Apr 24, 2014  #9

  • Adam,

    You will need to consult with an accountant or other tax professional as to your inquiry.

    Stephen Jessup Jan 28, 2014  #8

  • I received an overpayment statement that SSDI from 2013. The statement date was 12-26-2013 and I received it after the new year. I made the payment in full weeks later, 2014. Can I still apply this payment to my 2013 taxes? The amount was less than $3000.00.

    Adam Jan 27, 2014  #7

  • Raymond,

    Unfortunately, I do not have any suggestions as to the best way to handle your predicament outside of contacting your carrier to inquire.

    Stephen Jessup Jan 19, 2014  #6

  • We are experiencing this unfortunate situation, having received the back pay from SSD in late December, and paying back the LTD company early in the year, with the added whammy of two children in college.

    The LTD company is still calculating the amount we need to pay back to them, meanwhile it is going to mess with the FASFA returns for our college kids (both of them).

    I am wishing that we could repay the LTD company for last year, so things could “wash out” a lot neater and have less of an impact on my children’s financial aid…

    Any suggestions?

    Raymond Jan 18, 2014  #5

  • Sue,

    Unfortunately, I am unable to answer your questions as Social Security Disability and its effects on Pension benefits is outside the scope of our focus. With respect to any questions you have as to the SSDI benefit I would advise you to consult with a SSDI attorney and with an accountant as it relates to any taxability.

    Gregory Dell Sep 4, 2013  #4

  • I believe I am subject to the windfall effect on my social security benefits as I will be eligible for a pension in which I did not pay into social security. I worked at a public school system in Ohio and they have their own state teachers retirement. I did work at a job prior and after those 13 years paying into soc. sec. for 20 years. Just recently qualifying for soc. sec. disability, I received a lump sum in which the windfall effect was not included. Is this because I have not applied for the pension from Ohio as I am not of age yet? My lump sum will repay long term disability. Also, is my soc. sec. taxable because I paid the premium post tax?

    Sue Mills Sep 4, 2013  #3

  • E.B.,

    You have asked a complicated question which needs to be answered by an accountant. I hope you can get some money back.

    Gregory Dell Oct 22, 2012  #2

  • How is this impacted when you also receive a Workers Compensation settlement in the same year, prior to SSDI approval. The law states I cannot file a tax return if I am receiving Workers Compensation wages. Does that mean I have no shot at recouping the taxes I already paid in receiving my LTD when SSDI retro is issued for same period? Thank you.

    Mrs. E.B. Huber Oct 22, 2012  #1

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