fers/social security offset tax implications

Previous | Next
 rated by 0 users
Latest post 06-25-2012 10:57 PM by Clarkee. 36 replies.
  • 08-13-2009 11:00 AM

    • TSmith23
      Consumer
    • Top 500 Contributor
    • Joined on 08-13-2009
    • CT
    • Posts 90

    fers/social security offset tax implications

    if you are a fers disability annuitant and receive ... social security disability payments, how is that handled for tax purposes?  because of the offset rules, i understand that a portion of that social security payment needs to be paid back to opm.  does opm factor that payment in when it sends future 1099-r statements so that it shows a corrected gross income amount or do annuitants have to file amended returns for each year they received both fers and ssdi payments concurrently?

  • 08-13-2009 11:59 AM In reply to

    Feedback [*=*] Re: fers/social security offset tax implications

    If you are approved for both Social Security (SSDI) and FERS Disability Retirement you don't "pay back" anything to OPM. You MUST send OPM a copy of your "Notice of Award" letter that you receive from Social Security. During your first year 100% of any Social Security that you receive is deducted from your FERS Annuity (when you will be receiving 60% of your high-3 salary from OPM). During the second year (when you receive 40% of your high-3 salary from OPM) 60% of any Social security that you receive is deducted. View it as if you have two jobs (two pay checks), and one boss is not happy that you have a second job, and reduces your pay!

    For Federal taxes the full amount from OPM and Social Security is taxable. In regard to state taxes, each state is different. In most states the FERS Annuity is fully taxable. In regard to Social Security, some states don't apply any tax, some tax part of it, and some tax none of it. You will receice a 1099 from both OPM and Social Security. 

  • 08-13-2009 12:53 PM In reply to

    • TSmith23
      Consumer
    • Top 500 Contributor
    • Joined on 08-13-2009
    • CT
    • Posts 90

    Re: fers/social security offset tax implications

    thank you very much for the reply.  point of clarification.  what about in situations where you have already been receiving fers benefits for years and social security has finally been approved?  my understanding is that i had to pay back opm for the previous years when i get my lump sum from social security.

    so, if started getting fers benefits in 2005, but my social security doesn't start until 9/09, don't i have to re-pay the 100% i was overpaid by fers for the first 12 months and then the 60% i was overpaid for each month after that until they adjust my fers payment moving forward.

    as an example, let's say i receive $1000 a month in social security benefits retroctive to 1/1/05 for the 4 years and 8 months.  i would get a lump sum in the amount of roughly $56,000 less $5,300 for my lawyer.  i have to pay taxes on the social security income, which is a whole separate issue, and don't i have to send opm $12,000 for the first year (100% of my social security benefits) and roughly $26,000 (60% of the all months after that until my fers check is adjusted to reflect my new social security monthly payment.  at that point, i'll be getting my regular social security check of $1000 and an adjusted fers check which is $600 less than it used to be as a result of the offset.

    am i on track at all with this?

  • 08-13-2009 1:37 PM In reply to

    Feedback [*=*] Re: fers/social security offset tax implications

    To my knowledge, Social Security is not paid retroactively. Upon approval of Social Security you send OPM the "Notice of Award" Letter. If you are receiving 40% of your high-3 salary, 60% of Social Security is deducted. The 100% deduction of Social Security does not come into play at all. If you do not send OPM the "Notice of Award" Letter THEN you would have to pay OPM for any overpayment. OPM checks with Social Security on a regular basis to confirm the law is followed.

    Now, FERS payment can be made retroactively if you had been in a Leave Without Pay (LWOP) status prior to approve. Upon the finalizing of your case, OPM will make a lump sum payment (I was in a LWOP status for about a year; therefore, I received a lump sum payment at 60% of my high-3 salary. When regular payments began, I received 40% of my high-3. My Social Security (SSDI) payments began before my FERS was approved so the Social Security was deducted from my lump sum back pay.

  • 08-13-2009 8:42 PM In reply to

    • TSmith23
      Consumer
    • Top 500 Contributor
    • Joined on 08-13-2009
    • CT
    • Posts 90

    Re: fers/social security offset tax implications

    it gets complicated and each case is so unique.  my eligibility date is 2005, so in my case it is retroactive to when i filed with social security for benefits.  it would certainly have been simpler if my ssdi started before my fers, but i  think i am correct that i'll have to owe opm because my fers benefits started before my ssdi.  if anyone out there can confirm this based on their experience, i would certainly appreciate figuring out how this works.  i can't find anything that details how i'm supposed to handle this for tax purposes.  i'll obviously consult an adivsor before filing if need be, but i'm just trying to ballpark my tax liability.

    i was able to locate an opm brochure which touched on this.  it reads"...you must notify OPM of the amount of the monthly Social Security benefit and the effective date of the payment immediately upon becoming eligible.  It is your responsibility to minimize any period of overpayment by promptly notifying OPM.  You should forward to OPM a copy of the award notice or statement from the Social Security Administration showing the monthly amount and the effective date of the Social Security benefit." 

    "...Social Security checks should not be negotiated until the FERS benefit has been reduced.  The Social Security checks are needed to pay the Office of Personnel Management (OPM) for the reduction which should have been made in the FERS annuity."

    the second paragraph seems to pertain to my situation and is consistent with my lawyer's feedback to me that I should hang on to the money until I've paid opm.  i have 4 years of fers payments that would have been reduced had I received my approval promptly.  since it took this long to get a favorable outcome, opm has to go back and calculate what they should have paid me and I owe them the difference between that amount and what they actually did.

  • 08-13-2009 9:04 PM In reply to

    • TSmith23
      Consumer
    • Top 500 Contributor
    • Joined on 08-13-2009
    • CT
    • Posts 90

    Re: fers/social security offset tax implications

    found this in a CSRS document, but it's the same for FERS.

    "Social Security often awards disability benefits later than OPM because of differences between the rules for Social Security benefits and CSRS benefits. If this happens to you, it is important that you notify OPM immediately when SSA awards benefits. In addition, if SSA awards retroactive

     

    benefits, you should set aside the amount you are overpaid. OPM must reduce your annuity retroactively to the beginning of your Social Security benefit, and will bill you for any overpayment."

  • 08-16-2009 7:21 PM In reply to

    • TSmith23
      Consumer
    • Top 500 Contributor
    • Joined on 08-13-2009
    • CT
    • Posts 90

    Re: fers/social security offset tax implications

    perhaps my question was not as clear as it could be, or maybe my situation is just not common, but i'll try again in the hopes that mr. mcgill or someone on the forum will know the answer or could refer me somewhere.

    if you started receiving fers benefits before you began receiving social security benefits, opm recalculates your fers annuity and reduces it for future payments due to the offset rules which limit your fers annuity when you are also receiving social security benefits.  if there is any overpayment, they require you to pay that money back to them.

    if this happened to you, did you report the payment you made to opm on your tax return as income for that year or did you not report it and treat it as a payment back of income you've already paid taxes on?  if you did report it, did you report for that year or did you file amended tax returns for any previous years where opm recalculated your annuity?

    as an example, let's say you started receiving fers benefits in january 2007.  then&... receiving social security benefits in january 2008, but social security made your benefits retroactive to when you filed for them in january 2007.  social security sent you a check to cover the time period in 2007 when you were elgible and should have been receiving benefits.  you inform opm that you are now receiving social security benefits and send them your award notice.  they see that you received retroactive benefits and recalculate your annuity for future months, but also bill you for the amount that they actually overpaid you in 2007.  you send them a check out of the payment you received from the social security administration.

    presumably social security reports that entire payment to the irs as income to you.  in reality, part of that payment is simply money you are taking to send back to opm when you get the bill from them.  i am trying to determine how you report that payment, so that you aren't in the position of paying income taxes on that money twice.  the first time when you got it as part of your fers annuity in 2007 and again when social security sends it to you and you simply pay it back to opm as an overpayment from 2007.

    i know this question is little technical, but opm makes specific reference to the fact that often times people begin receiving fers benefits before social security benefits because of the length of time it sometimes takes to get approvals.  there have to been many people in my exact same situation and i can't find any mention of how this overpayment is handled.

  • 08-16-2009 8:42 PM In reply to

    Feedback [*=*] Re: fers/social security offset tax implications

    I think you issue is highly unique, and more a question for an accountant and/or a tax attorney. Although the social security benefits that you would receive are retroactive, they are taxible in the year you receive them. This I am positive of as I was on Leave Without Pay (LWOP) from September 1, 2007 until my case was finalized on September 30, 2008 (My FERS Disability Retirement was approved on June 20, 2008; therefore, I was in an interim pay status until September 30, 2008). I received "back pay" at 60% of my high-3 salary from OPM for the period  I was on LWOP. Health insurance premiums pre-paid by my (former) agency, federal income taxes, and gross interium pay was deducted from the back pay (state taxes WERE NOT deducted). Although part of that back pay covered the LWOP period in 2007, it was fully taxable in 2008.

    The FERS Disability/Social Security offset issue opens up a whole can of worms and most likely would require an amended return (but best answered by an accountant).

    Also, each state has different tax laws relating to Social Security payments which may require an amended state return.

    Another point, in almost all cases, Social Security payments are via direct deposit NOT paper check; therefore, if your direct deposits go into a checking account you will need to carefully keep track of your account so that the retroactive Social Security payment can be moved to another account so you do not by error spend it.

    Also, even though there often is a direct link between FERS Federal Disability Retirement and SSDI, DETAILED Social Securty issues are generally not widely discussed on this Message Board; but, I believe there is a Social Security Message Board for SPECIFIC to Social Security issues that can't be answered here. This, in addition to the uniqueness of your situation is most likely the reason that you have not gotten much feedback to your question.

    Finally, in most cases Medicare does not start until one has received SSDI for 24 months; therefore, I'm not sure if, or if not this raises implications due to  retroactive SSDI payments, and issues related to FEHB as Medicare becomes primary (just a thought).

    Hope this answers some of your questions.

  • 08-16-2009 9:28 PM In reply to

    • TSmith23
      Consumer
    • Top 500 Contributor
    • Joined on 08-13-2009
    • CT
    • Posts 90

    Re: fers/social security offset tax implications

    Thanks for the info.  Yes, it does help.  The reason I was posting here instead of on a Social Security board is that my situation is tied directly to my FERS annuity.  If I was just on Social Security, I'd just be paying taxes on my Social Security benefits, but because I'm in the position of having to re-pay OPM, I'm trying to figure the appropriate way to file without having to pay taxes again on the same FERS income.

    My situation is unique I guess, but it surprises me that most people on FERS and also receiving Social Security benfits were able to get their Social Security approval first.  It took me a few months to get my FERS approval and almost a year just to get to my Social Security hearing. I must be living in the wrong part of the country because Social Security is painfully slow and if you have to appeal, like I did, the process can take years.

    Maybe what is unique is that Social Security does not always approve your case from the date you applied, like mine was.  It may be that they make your benefits effective from the date of approval, which would prevent the problem of overpayment because OPM and SSA can get in sycn right away and avoid any overpayment issues.

    As to Medicare, you are right about the 2 year wait.  In my case, because my Social Security is retroactive to 2005, I've got 4 years under my belt and will be sent my Medicare card automatically.  It looks like Medicare will be primary for any hospital stays, but I'm not going to enroll in Part B, so FEHB will remain primary for doctor, rx, etc.

    In any event, sorry if i've posted on something unique to just me or in the wrong place.  I'll hit up an accountant to figure it out for sure.

  • 08-16-2009 10:15 PM In reply to

    More [=+=] Re: fers/social security offset tax implications

    I think I'm more unique in that I was approved for Social Security before FERS (by only a few months).  My SSDI payments began in March 2008. My FERS Disability Retirement was approved on June 20, 2008. Both applications were submitted on December 26, 2007. Far less people are approved for Social Security AT ALL due to the very strict definition that Social Security uses; therefore, Social Security issues pertains to very few on this Message Board.

    Since this Message Board is for legal issues of Federal Disability Retirement the tax issues are left for accountants. Hence, the lack of feedback you have received.

    I raised the Medicare issue more as a question in the coordination of it, and FEHBP. If Social Secuity is retroactive is Medicare also for (in your case) for 2007 forward requiring recomputing past FEHB payment, and therefore, Medicare "paying" your FEHB Plan for past payments they made, or from the date you receive the card? Just a thought.

  • 08-16-2009 10:46 PM In reply to

    • TSmith23
      Consumer
    • Top 500 Contributor
    • Joined on 08-13-2009
    • CT
    • Posts 90

    Re: fers/social security offset tax implications

    that's true. not everyone has both and maybe a very small minority ultimately have both and maybe an even smaller minority have a retroactive eligibility date.  i figured i'd have to seek out a tax attorney, but was just trying to get whatever facts i could figuring that not too many accountants or tax attorneys are dealing with clients on fers and ssdi and they may need some direction.  guess i was banking on the fact that more people were in this situation and could speak to the practical implications of handling this payment.

    i do believe you are right that social security will report to the irs the entire amount of my payment and that i'll either have to find some legal and appropriate way not to report that opm back payment on my 2009 tax return or will have to go back and amend my 2005, 2006, 2007 and 2008 federal and state tax returns.  because if i don't, i'll be paying federal and state income tax on that overpayment amount twice which will essentially eliminate the 4 years of social security benefits i'm getting.  i'll be in the exact same situation as if i'd been awarded benefits prospectively only, except without all of this hassle.

    you do raise a good point about medicare.  my eligibility began in 2007, but i haven't had a hospitalization, so fehb hasn't had to pay out anything that medicare would have covered.  but the point is valid if for example i was taken to the hospital by ambulance and was admitted and fehb picked up the tab.  it would seem that fehb could have the claim reprocessed by medicare as primary.  fortunately, not a wrinkle i have to worry about.

  • 08-17-2009 8:28 AM In reply to

    • Kivi
      Consumer
    • Top 25 Contributor
    • Joined on 01-01-2005
    • CA
    • Posts 6,169

    Re: fers/social security offset tax implications

    The taxation of SS benefits is described in IRS Publication 915.

    Even though you receive a lump sum SS payment, there are some provisions within 915 that will allow you to account for the fact that the payment was retroactive to 2005.

    As for the payback to OPM, I suspect that you can get amended 1099's for the years in question and file amended tax returns, at least for 2006, 2007 and 2008.  Whether you will be able to file an amended return for 2005 is not something I am can comment on.  Generally, an amended return must be filed within 3 years of the original due date of the tax return being amended.  For most tax payers, the original tax return for 2005 would have been filed by 04/15/2006.  Therefore, an amended return probably would have been due by 04/15/2009.  But, with extensions, the original tax return to 2005 could have been filed as late as 10/15 or 10/30/2005.  (I forget the exact date.) 

    But, maybe there is some tax code exception that might apply here. 

    Probably best to consult a tax pro about your situation.  You might have other issues, such as an early distribution from your TSP, etc., that you would need tax advice about anyway.

     

  • 08-17-2009 9:32 AM In reply to

    • TSmith23
      Consumer
    • Top 500 Contributor
    • Joined on 08-13-2009
    • CT
    • Posts 90

    Re: fers/social security offset tax implications

    that's helpful feedback.  thank you.  i'm sure hoping there is a way around having to go back all those years.  what a pain.  nice that you can avoid it with social security taxes, but i guess if i end up having to file amended returns i can do the calculations both ways to see if the exceptions detailed in form 915 actually put me in a better position than amending my returns for that income as well for previous years.

    i was curious about your comment regarding tsp.  i have been letting my tsp sit since i left the government.  i don't have plans to tap it any time soon, but wondered what you were getting at with regard to early distribution.

  • 08-17-2009 9:52 AM In reply to

    Re: fers/social security offset tax implications

    TSmith23:
    i do believe you are right that social security will report to the irs the entire amount of my payment and that i'll either have to find some legal and appropriate way not to report that opm back payment on my 2009 tax return or will have to go back and amend my 2005, 2006, 2007 and 2008 federal and state tax returns.

    As your question was a tax issue, it would have been better to put it on the tax boards, as that is where it is more likely that tax folks would see it :-)  I just happened to come by and see this one. The answer for federal income tax is pretty straightforward. If you must pay back a portion of the FERS you received in earlier years on which you paid federal income tax because of the lump sum Social Security payment, then SSA will give you a Form 1099-SSA for the SSDI and you will pay tax on that the year that you get it.

    In the year that you repay the FERS benefits for previous years' benefits, you do NOT amend prior returns. You instead either take a deduction for the payment or take a credit under what is known as the claim of right provision of Internal Revenue Code (IRC) section 1341. Whether you take the credit or the deduction depends on the amount of the repayment (it must be over $3,000 to use the credit under claim of right) and your circumstances. If you can do both, you choose the method that gives you the greater benefit. For more information, see the repayment discussion in IRS Publication 525.

    I hope this helps clear up what you will need to do.

  • 08-17-2009 1:01 PM In reply to

    • TSmith23
      Consumer
    • Top 500 Contributor
    • Joined on 08-13-2009
    • CT
    • Posts 90

    Re: fers/social security offset tax implications

    huge help.  thank you so much for taking the time to reply.  my apologies again for not putting my posts in the best place.  i will take a look at that publication.  it sounds like between that deduction or credit the exception in 915, i should be able to avoid any amended returns and any risk of double taxation.

    do you happen to know if most tax software is sophisticated enough to process such a return?  i swear by taxact and they have never let me down, but my returns have been generally routine until now.

Page 1 of 3 (37 items) 1 2 3 Next > | RSS

My Community

Community Membership New Users: Search Community