Tax impact of withdrawing SS benefits claim

[ceciledian]

I began claiming benefits 9 months ago at 63 and now considering withdrawing my claim and restarting later. I have voluntary income tax deductions from my monthly benefit payments. While researching I found that repayment of monthly benefits I received so far also includes voluntary federal income tax withholding that was deducted from the Social Security beneficiary’s monthly retirement benefit check must be repaid. What happens to the federal income taxes paid? Does the SSA-1099 reflect that amount?

 

[pb4uski]

I'm guessing that you would pay back 100% of your SS benefits but any tax withheld would be claimed as estimated tax on your 2023 tax return and either reduce your 2023 tax due or increase your 2023 refund.

If some of your 9 months was in 2022 I think you get a deduction from income of the amount of your 2022 benefits paid back in 2023.

 

[cathy63]

They might refund the 2023 tax that was withheld, or they might report it in box 6 of the SSA-1099. They have to do one or the other. Either way, you'll be made whole on the amount that was withheld this year.

The tax that was withheld on benefits received in 2022 has already been remitted to the IRS and accounted for on your 2022 tax return. You still have to pay it back to SSA, but you don't get a dollar-for-dollar rebate on it. It will be included in boxes 4 and 5 of your 2023 SSA-1099 and you'll end up with a negative number in box 5. If the amount you repay for 2022 is greater than $3K, then you can enter it as a claim of right on Schedule A if you itemize, or you can take part of it as a credit on Schedule 3.

 

[clobber]

I'm certainly not an expert, but:

1) Probably not a definitive source, but this AARP Article says, "Your repayment also must include any voluntary tax for a closed tax year — that is, money Social Security withheld from your benefit and paid to the Internal Revenue Service on your behalf."

2) You then likely have to follow the procedures in the repayment section of IRS Pub 525