Lump-Sum Benefit Payments
Some taxpayers may have received a lump-sum benefit payment. The payment could be for the current tax year and for prior tax years. Box 3 of the taxpayer's Form SSA-1099 or Form RRB-1099 will include the lump-sum payment. The form will also show the year, or years, of the payment. This additional information will be shown in Description of Amount in Box 3 on Form SSA-1099 or in boxes 7-9 on Form RRB-1099.
Do not confuse this type of lump-sum benefit payment with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. No part of the lump-sum death benefit is subject to tax.
When figuring the taxable portion of social security benefits, two options are available for lump-sum benefit payments:
Figuring the taxable benefits under the lump-sum election method is in scope for the VITA/TCE Program this year. If the taxpayer chooses the second option, only the current year income will be adjusted. Do not file amended returns for the earlier years.