Help w/ Social Security "PayCheck" in QP2008


M

Margaret

Hello, a few years ago I became disabled and have been receiving what
should be coordinated benefits with SSDI, but I was denied (SSDI, that
is). With an appeal pending, my employer's disability co has been
making up the difference. I recently won my appeal (and my retro SSDI
benefits will essentially reimburse my employer's disability insurance co.)

Anyway, I'll soon be getting a reduced amount from my employer's
disability co, as well as a second "paycheck" social security. I
understand the SSA will withhold my Medicare B premium, but I'm foggy on
if they withhold anything else. I also realize I only get an SSA-1099
at year's end (and no monthly stub), so I could really use some help in
constructing the monthly social security "paycheck" in Quicken.

Help much appreciated!! :)

Thx and Regards,

Margaret
 
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M

Margaret

Sorry to follow-up to my own post, but I just thought I should clarify
my request for help. :)

1. I'll be tracking medical insurance premiums for Medicare B as well as
a secondary insurance co through my former employer. (I will not be
enrolling in part D, as I'm fortunate enough to keep my old Rx
benefits.) I'd planned to use classes/tags to track these different
insurance premiums, but I'm wondering if it might be better to use
different categories. (I'd like to keep things simple as poss, so I'm
concerned about ease of reporting, etc.)

2. I'm assuming that the Med-B premium would be considered an
"after-tax" deduction. Correct?

Sorry to be such a dunce about all this. Just trying to understand the
$$ implications is difficult enough, but trying to accurately represent
something in Quicken that I don't understand completely is almost
impossible! <sheepish grin>

Thx much for your understanding and help.

Regards,

Margaret
 
R

R. C. White

Hi, Margaret.

Social Security and Medicare rules are far too complex for a mere retired
CPA like me to try to understand them and advise others on them. It's all I
can do these days to try to read my own benefits statements. And my wife
and I don't have nearly as many medical bills as many of our contemporaries.

But I can answer your Question 2: The Medicare Part B premium that is
deducted from your retirement benefit check each month is deductible as a
medical expense. Include it on Schedule A of Form 1040 with all your other
medical expenses to see if the total (net of insurance benefits received)
exceeds the 7.5% of Adjusted Gross Income threshold. If it does, then
include the excess with your deductible state taxes, interest on your home,
charitable contributions, etc., to see if the total deductions exceed the
Standard Deduction. If they don't then don't bother to itemize, just claim
the standard.

I'm not sure what your phrase, "'after-tax' deduction", means in this
context.

Remember that I've been retired a long time. Also, individual circumstances
vary infinitely, so it is impossible to advise anyone without knowing their
full tax situation. Disability insurance and payments add significant
complexity. Please discuss this in depth with your own CPA, who should be
fully informed as to the current rules and on your complete financial
background.

RC
--
R. C. White, CPA
San Marcos, TX
(Retired. No longer licensed to practice public accounting.)
(e-mail address removed)
Microsoft Windows MVP
(Currently running Quicken 2008 Deluxe in Vista Ultimate x64)
 
M

Margaret

Hi RC, please see comments within.

R. C. White said:
Hi, Margaret.

Social Security and Medicare rules are far too complex for a mere
retired CPA like me to try to understand them and advise others on
them. It's all I can do these days to try to read my own benefits
statements. And my wife and I don't have nearly as many medical bills
as many of our contemporaries.
I guess I shouldn't have gone into the disability details, as I'm just
concerned right now about creating a monthly social security deposit
using Quicken's "Paycheck" feature. Sorry for confusing the issue!! :)
But I can answer your Question 2: The Medicare Part B premium that is
deducted from your retirement benefit check each month is deductible as
a medical expense. Include it on Schedule A of Form 1040 with all your
other medical expenses to see if the total (net of insurance benefits
received) exceeds the 7.5% of Adjusted Gross Income threshold. If it
does, then include the excess with your deductible state taxes, interest
on your home, charitable contributions, etc., to see if the total
deductions exceed the Standard Deduction. If they don't then don't
bother to itemize, just claim the standard.
I've been itemizing ever since I purchased my home, and my med expenses
(despite excellent ins coverage) have continued to increase, such that
I've been able to deduct med expenses for a few years now. Of course,
tracking them is complicated (but doable), and now that I'm moving to
Medicare, I'm beginning to wonder if I might need another app such as
Q's Medical Expense Manager. (Haven't looked at it yet though.) I hate
to add another app to complicate matters, but I'm interested in hearing
how you or others track complicated medical expenses/insurance now that
Medicare is involved. I'm used to having set copays, so tracking of
deductibles, payments and reimbursements is going to be a new one for me.
I'm not sure what your phrase, "'after-tax' deduction", means in this
context.
Quicken's paycheck feature allows us to specify both pre-tax and
after-tax deductions. (Pre- are those paid with pre-tax dollars -- and
thus not deductible come tax time). After-tax are those such as fed &
state tax withholding, and it seems Medicare insurance premiums, since
they're deductible on Sched A. For the gross monthly SS benefit, is the
correct tax line item "Form 1040 Social Security income, self"?
Remember that I've been retired a long time. Also, individual
circumstances vary infinitely, so it is impossible to advise anyone
without knowing their full tax situation. Disability insurance and
payments add significant complexity. Please discuss this in depth with
your own CPA, who should be fully informed as to the current rules and
on your complete financial background.
I've been doing my own taxes since I started paying taxes, and I can
handle some pretty complicated stuff, considering I'm not a
professional. But in 2008, I'm going to have to do a claim of right
(1341) for years 2005-2007 plus lump sum election, and some have said
I'll need a really good tax professional. Others have said I need a
CPA. I'm trying to wrap my brain around this stuff, because being me, I
simply need to understand it as much as I can!! :) Almost every day I
find out something else that complicates matters further. So I'm
leaning toward the CPA, as you suggest. I'm glad I've got some time to
try to understand all this and locate a good CPA who can really help and
take some monkeys off my back. I just hope I can afford the price tag! :)

Thx and Regards,

Margaret
 
R

R. C. White

Hi, Margaret.

Well, you've got some complicated questions and some simple ones. Let's
start with the simple.

A Social Security benefit check is not a "pay check". Please don't try to
handle it like one. First of all, of course, the gross amount is not salary
or other compensation and does not belong on Line 7 of your Form 1040. It
should go to its own Line 20, where you calculate how much - based on your
other income - gets taxed. The only "withholding" from the benefit is Part
B Medicare insurance; unless you elect, there will be no federal or state
income tax withheld. I'm sure you know all that, but sometimes we overlook
the obvious.

For myself, I use a simple recurring transaction that splits into 2
categories: Social Security Income - RCW and , Medical:Insurance:Medicare
Part B - RCW, with the net amount as a deposit to my checking account. This
is set up to recur monthly on the Second Wednesday of each month. (There is
a similar split entry for my wife's pension.)
For the gross monthly SS benefit, is the correct tax line item "Form 1040
Social Security income, self"?
Yes.

The Part B premiums go to "Schedule A: Doctors, dentists, hospitals", since
the tax return does not require - or even provide a line for - a breakdown
between insurance premiums and other medical expenses. TurboTax does
provide a Medical Expenses Worksheet, but this is not a required part of
Form 1040; the heading includes the phrase, "Keep for your records". We
should, of course, keep such a worksheet, but we don't get much help from
Intuit in doing this.


As to the more complicated parts, as I've already said, disability benefits
have many a crook and turn in the tax provisions for them. To be sure of
handling them right, you need (1) a knowledge of all the facts and (2) a
very detailed understanding of the tax provisions regarding of each of those
facts. Some disability payments are fully taxable, others are fully exempt
and the rest fall somewhere between.
But in 2008, I'm going to have to do a claim of right (1341) for years
2005-2007 plus lump sum election, and some have said I'll need a really
good tax professional. Others have said I need a CPA.
The claim of right doctrine is a pretty esoteric subject. Even most general
practitioner CPAs and other tax professionals have not dealt with this and
will not even recognize the phrase. You probably have already researched
it, but here is the first hit from Google on "claim of right".
http://www.nysscpa.org/cpajournal/2004/1004/essentials/p42.htm

With both this and the disability questions, you are in pretty deep and may
be in over your head, even though you obviously are quite competent. Most
CPAs that I have known would not charge for an initial consultation to
discuss your situation and determine whether they can help you. Are there
CPAs in your area who specialize in income taxes?

There have been many cases where I was able to save clients far more than my
fee. And there were other cases where proper reporting required the clients
to pay more taxes. It was not unusual for me to prepare amended returns for
several years Clients often expressed relief at just being able to sleep,
confident that their returns have been handled properly.

RC
--
R. C. White, CPA
San Marcos, TX
(Retired. No longer licensed to practice public accounting.)
(e-mail address removed)
Microsoft Windows MVP
(Currently running Quicken 2008 Deluxe in Vista Ultimate x64 SP1)
 
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M

Margaret

Hi RC, pls see comments within....

R. C. White said:
The Part B premiums go to "Schedule A: Doctors, dentists, hospitals", since
the tax return does not require - or even provide a line for - a breakdown
between insurance premiums and other medical expenses. TurboTax does
provide a Medical Expenses Worksheet, but this is not a required part of
Form 1040; the heading includes the phrase, "Keep for your records". We
should, of course, keep such a worksheet, but we don't get much help from
Intuit in doing this.
For a few years now, I've been doing a breakdown in a special Medical
Expenses report that I created. I've recently started using
tags/classes, and I got a great tip from "JM" over in the Quicken
forums. After creating the correct tags, say, for medical insurance
premiums, I give each one a number. As a result, they get broken out as
a separate instance of "Schedule A: Doctors, dentists, hospitals" in the
Tax Schedule report. I'm using this tactic also to break out medical
aids such as eye glasses, etc., & other medical expenses, so I can
complete that Sched A properly w/o too much use of my papertape
calculator. :)

Q's Help says numbered tags are to be used for tracking multiple rental
properties, but thanks to JM's tip, I'm using it for other things, too,
for example:

* Breaking out cash donations with no receipt from those for which I
have a receipt. This way, I can track my total cash donations but make
sure the ones w/o receipt don't get accidentally included as a deduction
on my return.

(I hope my explanation was clearer than I think it is....)
As to the more complicated parts, as I've already said, disability benefits
have many a crook and turn in the tax provisions for them. To be sure of
handling them right, you need (1) a knowledge of all the facts and (2) a
very detailed understanding of the tax provisions regarding of each of
those
facts. Some disability payments are fully taxable, others are fully exempt
and the rest fall somewhere between.
My dis ins policy premiums were paid 100% by my employer, so the
payments are fully taxable for me. The policy is coordinated with SSDI,
so I'm expecting my SS benefits to be taxable (85%). We'll see how it
all shakes out. Fortunately the dis ins co is pretty knowledgeable (and
helpful) about this stuff and will even send me a detailed "claim of
right" letter (along with a big bill!) once they get my SSDI award
letter and have recalculated my benefits. (I'm still waiting for said
award letter, though I've received my Medicare card and a big dump of
retro benefits. 25% is withheld to pay the attorney, and assuming
there's something left, I guess I will receive the remainder of that 25%
at some point. Currently the $$ are sitting in a savings account, as
they -- and more -- belong to the ins co and not to me!)

Because my SSDI benefits are retro to 02/01/2005, I became eligible for
Medicare on 02/01/07. The SSA told me that my first benefit amt will be
auto-deposited to my checking acct in Feb, but they will be deducting
Medicare B premiums back to 02/01/2007. It's my understanding that
because these premiums will have been paid in 2008, they will be
deductible on my 2008 tax return. (Got that from a CPA over in
"misc.taxes")

Re my initial question of creating a SS "paycheck," I realize that SS
benefits are not a paycheck per se. Since I used the paycheck wizard to
create my LTD benefits income, I just wanted to be consistent. I did
use a simple split transaction for the upcoming SS deposit in Feb
(fourth Wed for me), due to retro Med-B premiums. Thanks much for your
explanation and confirmation of the correct tax line item. :)
The claim of right doctrine is a pretty esoteric subject. Even most
general practitioner CPAs and other tax professionals have not dealt
with this and will not even recognize the phrase. You probably have
already researched it, but here is the first hit from Google on "claim
of right".
http://www.nysscpa.org/cpajournal/2004/1004/essentials/p42.htm
Yes, I've been doing as much research as I can, mostly collecting
documents for later review, etc. Didn't have this link though, thx.
With both this and the disability questions, you are in pretty deep and
may be in over your head, even though you obviously are quite
competent. Most CPAs that I have known would not charge for an initial
consultation to discuss your situation and determine whether they can
help you. Are there CPAs in your area who specialize in income taxes?
Yes, I'm afraid I most likely am very well over my head. That TPs and
CPAs may not even recognize the "claim of right" term is not terribly
encouraging. So far, I've got a couple names of CPAs to check out.
That they *may* do an initial consult for free, is very good, as my plan
is to learn as much as I can, so I can tell a CPA who may *think* and
*say* they can do a "claim of right" from one who really knows their
stuff and has some experience doing it competently. I'm in Lansing, MI
and have no idea about which CPAs might specialize in income taxes.
Another topic I will be researching soon! :)
There have been many cases where I was able to save clients far more
than my fee. And there were other cases where proper reporting required
the clients to pay more taxes. It was not unusual for me to prepare
amended returns for several years Clients often expressed relief at
just being able to sleep, confident that their returns have been handled
properly.
This is exactly how I feel. For me to attempt this myself and risk
doing it incorrectly is just not worth it. I have no desire to be
penny-wise/pound foolish, and I will be very relieved knowing it will be
handled correctly. Nevertheless, being me, I can't just hand over
everything blindly, as I won't sleep at all, if I do that! ;-)

Another reason for my wanting to learn as much as I can about this is so
I can track it all in Quicken. Not only do I want this info for myself,
I want to be able to hand over detailed, clear reports (and other
supporting docs) to whomever will be doing my 2008 taxes.

Thx and Regards, RC. It really helps to be able to "talk" about this
especially confounding subject! You've been a tremendous help, and I
welcome any additional thoughts you may have.

Take good care,

Margaret
 
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