Lump Sum Social Security Payments

[David Lanning]

This is my first time on the message board, so I apologize if this question has already been asked. I have a client who received a Lump Sum SS payment for tax years 2017, 2018, and 2019. I tried using the Lump Sum Method in tax year 2019, but it still seemed to be a large payment. Instead of using the Lump Sum method, is it allowed to go back to tax years 2017 and 2018 and Amend these years (adding the SS amount for each year), and then do 2019 using just the SS amount for that year?

[Maude Lebowski]

If the worksheet is prepared correctly, you'll get the same result as amending the prior year returns. You can't amend the prior year returns though unless your taxpayer uses accrual accounting. You can check the worksheets result by "amending" the returns for yourself and check your work that way.

[Rapid Robert]

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I tried using the Lump Sum Method in tax year 2019, but it still seemed to be a large payment.

Does the taxpayer have enough other income to get over the SS taxablility threshold in any of the preceding years? The purpose of the Lump Sum Method is not to eliminate tax on SS benefits that would otherwise be payable, rather it is to eliminate the effect of a higher tax bracket due to receiving multiple years of income all at once. For most taxpayers, this means that they will still be paying tax on 3 years of benefits in a "large payment", but they won't be paying more than they would have if the money had been received each year.

[TaxGuyBill]

If the worksheet is prepared correctly, you'll get the same result as amending the prior year returns.

If I remember correctly, not necessarily. It still affects AGI on the current year return. So any AGI-based calculations would be changed. For example, the Premium Tax Credit would be calculated using 3 years worth of Social Security.

But I otherwise, I agree. You are not allowed to amend the previous years.

[Burke]

Take a theoretical scenario where, in one of the past years, the taxpayer had minimal income so that by "recalculating" the numbers for that year NONE of the newly-found Soc Sec benefits would have been taxable. That can obviously make a difference in 2019 federal taxable income. . .separate from any "tax bracket" issues.

And that would not be unusual. The reason for these Lump Sum payments that go back several years is generally due to disability claims that take a good while to settle, as most of the time lawyers have to get involved who specialize in these claims. So taxpayer may have been out of work during the covered years.