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Case Study 1: Lump-Sum Benefit PaymentsLast year, Jane applied for Social Security disability benefits but was told she was ineligible. She appealed the decision and won. In 2020, she received a lump-sum payment of $6,000, of which $2,000 was for 2019 and $4,000 was for 2020. Jane also received $5000 in Social Security benefits in 2020, so her 2020 Form SSA-1099 shows benefits paid of $11,000. Jane had other taxable income in 2019 and 2020. She should figure her taxable benefits under the lump-sum election method to see if it is lower. Click here for an explanation. Under the lump-sum election method, refigure the taxable part of all the benefits for the earlier year (including the lump-sum payment) using that year's income, then subtract any taxable benefits for that year that were previously reported. The remainder is the taxable part of the lump-sum payment and is added by the software to the taxable part of the benefits for the current year (figured without the lump-sum for the earlier year). In order to compute the taxable benefits, you will need copies of the taxpayer's prior year returns. For additional information on the lump-sum election, see Publication 915. |
Social Security Workout
Lump-Sum Benefit Payments
Publication 915
Publication 4012, Form SSA 1099-R