Yes, you want to enter using the lump sum method so that you get the best tax advantage. Follow the steps below to enter your social security benefits.
For a year where a lump sum is paid, the Social Security Administration (SSA) includes the full amount paid in a tax year and then shows the breakdown of the amount that applies to each year.
There is a "lump-sum" method of reporting in this situation which is all done on the tax return for the year of receipt of the benefits. Enter the appropriate amounts for each year when you start that section of your return.
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The IRS has a special lump-sum distribution calculation that would allow you to be taxed as though the funds were actually received in the year to which they are attributable or as though it were all for 2017. The lowest tax result will be used.
Great news: TurboTax can walk you through that process and calculate the proper tax based on your entries.
- If the tax is lower if it had been included on the prior returns there will be an amount added to the tax this year.
- If the tax is lower by including all of it on the 2017 return then that is where it will be taxed.
Check out the screenshots I have attached to help you. You will need your 2016 return for some of the information.
