A lump sum Social Security payment is one that was paid in the current year as back pay for previous years. Depending on the taxpayer's current year AGI, this income may be taxable and should be reported on Form 1040.
Boxes 3 to 5 of the taxpayer’s 1099-SSA are relevant:
- Box 3 shows the amount received in the current year;
- Box 4 shows the amount repaid by the taxpayer during the current year, if any;
- Box 5 shows the difference between Boxes 3 and 4 and must be reported as income on the current year return.
If Box 3 of the SSA-1099 includes any lump-sum payment for an earlier year, the section headed "Description of Amount in Box 3" will indicate the year(s) and amount(s), and the taxpayer can elect to refigure the taxable part of their benefits, potentially reducing the taxable amount for the current year.
If the taxpayer does not have any taxable social security benefits in the current year, the lump-sum election won't change the return and doesn't need to be completed. Otherwise, you can complete the SSA Lump-Sum Payment Worksheet to determine if the lump-sum election would benefit the taxpayer.
Before Completing the Worksheet
Knowing whether or not the lump-sum election will benefit the taxpayer, and thus whether the lump-sum benefits worksheet needs to be completed, requires first entering all the taxpayer's and, if applicable, spouse's income in the return.
Once you have entered all the income in the return, to determine if the lump-sum election will benefit the taxpayer, from the main menu of the tax return select:
- Income
- Social Security Benefits (1099-SSA, RRB-1099).
- Click the View button in the toolbar at the top to view the Social Security Benefits Worksheet.
If the taxpayer does not have any taxable social security benefits, the lump-sum election will not change the return and doesn't need to be completed.
Otherwise, if the taxpayer does have taxable social security benefits, before you complete the worksheet be sure to have complete copies of the prior year tax return(s) in hand for which lump-sum benefits were paid, since completing the worksheet requires entering certain amounts gleaned from the prior year(s).
Completing the Worksheet
In the Social Security Benefits menu select SSA Lump-Sum Payment Worksheet and follow these steps for each prior year listed on Form SSA-1099.
- Select New and then the year for which benefits were received during the current year. (This information is on the SSA-1099 in the section headed "Description of Amount in Box 3".)
- Filing Status in Earlier Year - Enter the taxpayer's filing status from the earlier year tax return.
- SSA Payments Received in Earlier Year - Enter the amount from Box 5 of Form SSA-1099 for the earlier year.
- Portion of This Years SSA for Earlier Year - Enter the portion of SSA benefits received in the current year for the earlier year.
- Adjusted Gross Income for Earlier Year - Enter the Adjusted Gross Income for the earlier year.
-
Exclusions/Adjustments Claimed in Earlier Year - Enter the total of the following adjustments credits claimed in the earlier year, if any:
- Adoption benefits (Form 8839)
- Qualified U.S. savings bond interest (Form 8815)
- Student loan interest (Schedule 1 line 21)
- Foreign earned income or foreign housing (Form 2555 or Form 2555-EZ)
- Certain income of bona fide residents of American Samoa (Form 4563 line 15) or Puerto Rico.
- Tax-Exempt Interest Received in Earlier Year - Enter any tax-exempt interest received in the earlier year (Form 1040 line 2a).
- Taxable Benefits Reported in Earlier Year - Enter the taxable SS benefits previously reported for the earlier year (Form 1040 line 6b).
Exit the menu when all of the earlier year information has been entered. The program will calculate the current year amount of taxable benefits and adjust the amount automatically if it benefits the taxpayer. TaxSlayer Pro will insert a current year's entry in the SSA Lump-Sum Payment menu. The abbreviation LSE will print next to the re-calculated taxable amount of SS benefits on Form 1040.
If the lump sum election doesn't benefit the taxpayer, then the worksheets won't be produced with the return.
Note: This is a guide on entering lump-sum Social Security payments into the TaxSlayer Pro program. This is not intended as tax advice.
Additional Information:
IRS Publication 915 - Social Security and Equivalent Railroad Retirement Benefits