A client got refunded a mispayment of prior years social security benefits. The SSA-1099 combines all income in box 5 but separates between years in box 3. Can we take the income in prior years in 08 Lacerte to reduce taxable SS in current year?
I dealt with this years ago and I don't think the answer has changed. You get a choice, one of which is to include all the refunded social security in the year received. The alternative is to recalculate the tax for each past year, add all the increases and report that number as additional tax on the return. The first option usually works if a person is just retiring from the workforce; the second option often works better if the person had a low income in past years, since the addition may not be taxes at all. Of course, you have to include a schedule with the return showing your calcuations and check for any disclosure form you might need to use. I think these instruction are in Publication 17, but I'm not sure without looking.
