2020 SSA Lump Sum Payment vs 2020 Quarterly Tax Payment

[Telecorder]

Both wife & I have received significant SSA retirement lump sum pretax payments in 2020 that include amounts for both 2019 & 2020. Do/should we calculate & file a quarterly tax form and pay estimated federal/state taxes on these amounts this quarter or wait until we file for 2020? Concerned that the state/federal taxes due at year end will be over the % allowed for our income.

[DavidS127]

It depends on how the lump-sum payments impact your taxable income in 2020 and the tax on that additional taxable income.

There are basically two ways to figure how much of the lump-sum payment will be included in your 2020 taxable income:

1. Based on your current years income; or,
2. By electing to calculate how much of the lump sum for prior years would have been taxed if it had been received in that prior year.

Refer to the IRS website at this link for more information and a link to IRS Publication 915 workshe....

So, using one of those two methods, you must calculate how much of the lump sum is taxable in 2020.  Then, using the tax rate for the tax bracket in which those "last dollars of income" will be taxed, calculate how much additional tax you will owe.  If you won't otherwise have enough tax withholding to "cover" that additional tax, you'll need to make an estimated tax payment to avoid underpayment penalties.

[Telecorder]

Thanks, David-

I went to a Tax CPA and paid him $370 to run different scenarios for lowering our tax liability. Unfortunately, he didn't do a breakout of the various what if scenarios I had requested but just looked at our 2020 tax liability impact if I increased my 401K contributions to 25% from the current 6%. [Likewise, he didn't raise the option of apportioning the lump sum to prior year.] I then had to show him the released 2020 Tax Table chart that reflects our potential taxes will be nearly $4K higher than his estimate.

He didn't look at and appeared unaware that we could submit a W4V for with holding a % of our Social Security monthly checks for the remaining 6 months of 2020.

To his credit, he did raise the question of our possibly qualifying for the Federal Adoption Tax Credit due to our interstate adoption of our grandchildren that was finalized in 2018 - but he stated he was not able to get any answers from his 'tax software vendor' on the subject. We did not look at this when we filed for 2018 due to not having incurred any adoption expenses. [Our adoption expenses were covered by the state of Arizona and we were afforded a monthly adoption subsidy as the state considered that our Grandchildren would not be able to be adopted without the subsidy.]

My questions now are -

• Can we claim the Federal Adoption Tax Credit on our 2020 taxes or do we need to amend our 2018 Federal Taxes to claim the credit
• Since we paid taxes in 2018 & 2019 and had refunds each year, how would this affect our 2018, 2019 and 2020 taxes if we have to go back and amend our 2018 tax filing to claim the tax credit; will we need to also amend our 2019 tax filing
• Does the 2018/2019 Turbo Tax software/Will the 2020 Turbo Tax program address this Federal Adoption Tax Credit issue?

Much appreciation...