Need advise with declaring back-pay income from 2002-2007

Discussion in 'US Taxes' started by Michael B., Sep 4, 2007.

  1. Michael B.

    Michael B. Guest

    I hope that some of you can give me some opinions/help with the following
    situation, which I will describe in brief:

    My father, who is a union worker is currently 77 years old and continues to
    work full-time. He has been receiving full social security pension after
    he turned 70 1/2 (which is like $15K a year) and his yearly work income is
    about $65K a year. His wife is alive but is retired and has no income. So
    the total income is about $80K per year for both of them together. They
    file jointly.

    It turns out that earlier this year (2007), his local union and the national
    one for his industry realized that he should had started receiving his 2
    union pensions also after he turned 70 1/2. They have calculated that he
    is owed $31K and $60K in pension back pay from the period of 2002-2007.
    They want to send him the two checks so he is all "caught-up" and he will
    now receive the proper pay monthly.

    Here are my questions:

    1) If he is to earn the usual $80K and then add these $91K in "back-pay",
    his total income for the year is going to be $171K. A huge chunk of that
    will go back to the government for taxes. Correct?

    2) If he was being paid those two pensions as he was supposed to, he would
    have been only adding about $15K per year in additional income per year for
    the period of 2002-2006. This would of course mean a smaller refund for
    those years but at least he would not be hit with this huge tax for the year
    2007 on this "extra $91K" one-time income.

    3) From what I understand, there is no way to go back to re-file 2002-2006
    taxes with the $30K and $60K properly divided between each of those years.
    This would be the best way, I assume?

    4) He has NOT been issues or sent those 2 back-pay checks. Is there any
    way he can instead of cashing them ,have them go to some tax-deffered fund
    so that he avoids declaring these $91K as income just for the year 2007?
    It would be the best that he would just withdraw from the $91K like $10K per
    year onwards and limit his tax exposure.

    Any help is appreciated in this complicated sitation. It's just I think
    it's unfair that although he is getting all the money that is due to him
    that due to the union's mistake he is going to be taking a huge tax hit for
    the year 2007.

    Thank you!
    Michael B., Sep 4, 2007
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  2. Michael B.

    Jim Kingdon Guest

    1) If he is to earn the usual $80K and then add these $91K in
    Well, "huge" is probably in the neighborhood of 33% (or whatever it is
    these days, and depending on various details). So don't jump to
    conclusions without figuring some numbers.
    Well, have you looked into amended returns? I don't know if it
    applies to a situation like this, where the income was not received
    when it should have been, however.

    Since he was working in 2002-2006, it is possible that it wouldn't
    make as big a difference as you think.
    Not something I'm expert in, but, if possible, it is surely more
    complicated than just "don't cash the checks".
    Jim Kingdon, Sep 4, 2007
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