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I received a lump sum distribution from Social Security in…

I received a lump...

I received a lump sum distribution from Social Security in December 2017 for the time period since I turned 66, April 12, 2016, because I have just filed. I chose the lump sum distribution over the increased monthly payments. Will the lump sum distribution be counted as income for 2017?

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

I don't think so.

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Answered in 1 minute by:
1/19/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 14,203
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

Hi. My name’s Lane …

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

Bear with me a moment while I type up my response. Then if you have further questions we can go from there.

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No one pays federal income tax on more than 85 percent of his or her Social Security benefits based on Internal Revenue Service (IRS) rules. If you:

...

  • file a federal tax return as an "individual" and your combined income* is
    • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
    • more than $34,000, up to 85 percent of your benefits may be taxable.

  • file a joint return, and you and your spouse have a combined income* that is
    • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
    • more than $44,000, up to 85 percent of your benefits may be taxable.

  • are married and file a separate tax return, you probably will pay taxes on your benefits.

...

*Note:

Your adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefits
= Your "combined income"

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The only way that you wouldn't treat this as regular monthly payments is if some of the payment were allocated from a previous year (previous to 2017)

...

Your 1099-SSA will state in Box 3 the exact amount of your lump sum that was accrued during previous years.

...

If none, then you'll simply need to work through the publication 915 worksheet (this is done automatically if you use one of the software packages such as turbotax to file

...

If you'd like to give me the amount of 2017 Social Security and your other income (along with how you file - single jointly, etc) I can run the numbers for your

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Customer reply replied 4 months ago
I should have been patient and waited for SSA-1099. Will the part attributed to 2016 be taxed differently since the total distribution was received in 2017?

It can be.

...

Bear with me and I'll pull up the regs on that

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On the SSA-1099, each year will be listed separately alongside the total amount paid for that year. Rather than requiring you to file amended returns for those years, the IRS allows you to handle it all on your current tax return, using prior years' income amounts.

...

https://www.irs.gov/pub/irs-pdf/p915.pdf

...

While IRS Publication 915 provides a way to calculate how much of your lump sum payment is taxable, the formula is highly technical and confusing for the majority of people. But if you use turbotax and use the interview method and enter the 1099 box by box, it dos the calculation for you.

...

Essentially, your treating the prior year income as if it came in the prior year, so it doesn't drive you into a higher bracket, and increases the chances that less of it will be taxable

Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 14,203
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Finance Specialists are ready to help you
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Customer reply replied 3 months ago
No additional questions right now.
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Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 14,203
14,203 Satisfied Customers
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

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