How to avoid tax on Lumpsum social security payments SSA-1099

[ns482565]

There is an article on SSA 1099 with lumpsum payment for 2025 that includes payment from 2024. Turbo Tax has input screens to add the lumpsum for 2025 along with previous year amounts that is shown as asterisk on SSA-1099. However, the article also mentions that the additional tax due to lumpsum payment for previous year can be avoided by apportioning prior year benefits to those previous years’ income (still without filing any amended returns). I need information on how to help client avoid the additional tax and steps. 

Thank you

[KrisD15 · Accepted solution]

You will report your 1099-R (including the lump-sum)  on your 2025 return, but you do have two options regarding the tax treatment. 

1.)You can be taxed on all the income on your 2025 tax return at your 2025 tax rate

OR

2.)You can opt to pay the tax on your 2025 return, BUT AT THE RATE YOU WOULD HAVE PAID ON IT HAD THE INCOME BEEN PROPERLY PAID IN THE PREVIOUS YEAR(S)..

If you have no tax on your Social Security Payments, it doesn't matter, but if the additional income puts you into a higher tax bracket, you might want to use that second option.

Basically you figure the tax you would have been charged on your 2024 return for that income and then pay that dollar amount on your 2025 return.

TurboTax can help you determine if this is advantageous for you.

Designate the 2024 amount as a lump-sum payment and proceed through the interview. 

 HERE is a link with more information.
 

[ns482565]

Thank you for the explanation! Its very helpful!