how do i report a lump sum payment

[kstern]

lump sum payment for disability including previous years

[SharonD007]

Please clarify if your lump sum payment is for Social Security.  What type  of form did you receive?

[kstern]

To clarify, the lump sum payment is repayment for disability benefits for 2021, 2022 and 2023.  I am not sure how and where to put those values.  Also, the repayments had to be turned over to the disability insurance company.  So I also wonder if I should be getting a refund for those years of the tax paid.  (The disability insurance company covers 2/3 of my previous salary.  If SSA kicks in, then they cover the balance of the amount.  In 2024 I filed with the SSA benefits and paid substantially less in taxes than when the insurance company covered all of the disability amount.  

[JamesG1]

In TurboTax Online, follow these directions to report a Social Security lump payment: 

• Down the left side of the screen, click on Federal.
• Down the left side of the screen, click on Wages & Income.
• Scroll down to Retirement plans and Social Security, click the down arrow 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.
• Enter the year and dollar amount from the SSA-1099.
• You will have to answer questions about that same year's tax return.
• Repeat for each year listed on the SSA-1099.

A Claim of Right Repayment is a deduction you can take in the current tax year if you are required to pay back income in excess of $3,000 from a previous tax year that you thought you could keep. You reported and paid taxes on the money, not knowing you would have to pay it back.

Examples of this type of income include: the repayment of signing bonuses, moving expenses, unemployment compensation, and other funds.

In Turbotax Online, the claim of right repayment over $3,000 may be reported as a deduction by following these steps.

• Down the left side of the screen, click on Federal.
• Down the left side of the screen, click on Deductions & Credits.
• Click the down arrow to the right of Other Deductions and Credits.
• Click to the right of Other Deductible Expenses.
• At the screen Did you have any of these other expenses?, click Yes.

The deduction is reported on line 16 of Schedule A Itemized Deductions.

IRS Publication 525 Taxable and Nontaxable Income, page 36, states:

Repayment over $3,000

If the amount you repaid was more than $3,000, you can deduct the repayment as an other itemized deduction on Schedule A (Form 1040), line 16, if you included the income under a claim of right. This means that at the time you included the income, it appeared that you had an unrestricted right to it. However, you can choose to take a credit for the year of repayment. Figure your tax under both methods and compare the results. Use the method (deduction or credit) that results in less tax. 

See this TurboTax Help.  Taking the credit option involves using TurboTax Desktop.

[kstern]

Thank you for the info.  I did start to enter the three years individually, but I got confused as to how to enter the 3rd box.  We did not receive any direct payments from SSA in 2021, for example, so do I enter 0 there?  What I am concerned about is getting 'double taxed'.  We already have paid the tax for his income in 2021 and I don't want this repayment to seem like extra income - it is not.  All of the money went to the insurance company who paid his full income in 2021.

I also don't understand how to handle Schedule 3 or how to check if we should get tax money back from 2021, 2022 and 2023.  I think I need to go and find a CPA!

[JamesG1]

If you did not receive a Social Security lump sum for 2021, you do not have to enter that year.  

At the screen Here's your lump sum payment info, you may delete the entry for 2021 by clicking the trashcan icon to the far right.

Getting professional help is always a good idea!