The Social Security lump sum payment is reported on the 2020 Federal 1040 tax return. In TurboTax Online, a Social Security lump sum payment can be computed by following these steps:
- Down the left side of the screen, click on Federal.
- Across the top of the screen, click on Wages & income.
- Under Your income, scroll down to Retirement plans and social security.
- Click on Show more to the right.
- Click on Start/Revisit to the right of Social Security (SSA-1099).
- At the screen Tell us about the benefits you received, enter the information as it is printed on the form.
- At the screen Did you receive any lump-sum payments?, click Yes.
- As an example, the year was 2018 and the amount was $5,000.
- You will have to answer questions about the 2018 tax return.
- Then answer questions about the 2019 tax return.
- TurboTax will break down the payments into what amount was received for each preceding year. You pay taxes on the lump sum in the current year tax return.
The payment to the LTD company takes place in 2021, will be reported on the 2021 Federal 1040 tax return and will be treated as a claim of right repayment. A claim of right repayment occurs when a taxpayer is required to repay income that they had reported and paid tax on in a previous tax year. The repayment must be of funds that, when received, the taxpayer had a reasonable belief he or she had unrestricted access to.
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