Yes, you need to include this income on your return. You should have received a 1099-R or similar for your lump sum payment. The taxes withheld are just an estimate of your tax liability, and you may owe more or even get a refund, depending on your circumstances for the year.
If you do not include it, you will get a letter from the IRS called a CP2000, taxing you on the full amount plus penalties and interest if you owe additional tax.
