Thanks to @fanfare, @Critter-3 for responding.
If we refer to IRS publication 915 for 2021, Page 11, it states:
"Generally, you use your 2021 income to figure the taxable part of the total benefits received in 2021. However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. You can elect this method if it lowers your taxable benefits.
Under the lump-sum election method, you refigure the taxable part of all your benefits for the earlier year (including the lump-sum payment) using that year's income. Then, you subtract any taxable benefits for that year that you previously reported. The remainder is the taxable part of the lump-sum payment. Add it to the taxable part of your benefits for 2021 (figured without the lump-sum payment for the earlier year)"
I read this to mean that we should take 85% of the Lump Sum payment of 2020 of $1,606 and apply my 2020 marginal tax rate of 22% to compute the tax on this Lump Sum payment.
I had enough Taxable Income in 2020 to get into the 22% tax bracket. In 2021, my Taxable Income puts me well into the 24% tax bracket.
However, TurboTax 2021 assessed zero tax on the Lump Sum payment. I don't see that zero tax can possibly be correct, given my 2020 income.
Additional info, if I fire up TurboTax 2021 and delete the info I put in for the Lump Sum Payment, TurboTax then comes up with the exact same tax amount and additional tax as shown in the recent letter from the IRS.
For now, I have sent a check to the IRS to pay the additional tax and "stop the clock" on the interest accruing. For those interested, the exact wording in the IRS letter is, "We changed the amount of taxable Social Security benefits on your tax return because there was an error in the computation of the taxable amount"
In other words, the IRS computation disagrees with the TurboTax 2021 computation.
The IRS letter says I have until 20-Jan-23 to appeal the additional assessment. So, any more input on this thread is appreciated.
At this point, I am puzzled as to how TurboTax 2021 computes the tax on the Lump Sum payment for 2020: am wondering about a bug.
