I received a lump sum from SS disability which included amounts from 2020 and 2021. For both years, am I able to only be taxed on the 85% of our gross income?

[SantinoD · Accepted solution]

It depends, you must include the taxable part of a lump-sum payment of benefits received in the current year (reported to you on Form SSA-1099, Social Security Benefit Statement) income, even if the payment includes benefits for an earlier year.

However, there are a couple of ways to determine the amount of income to include.

TurboTax will guide you to ensure you are getting the best outcome possible. But you will need some information from your 2020 and 2021 filed tax returns and 2020 and 2021 SSA-1099's. Once you have collected those documents, log in to TurboTax and follow the guided questions to enter your lump-sum SS benefit amounts. 

1. Open (continue) your return in TurboTax
2. In the search bar, search for the term Social Security benefits and then select the Jump to link at the top of your search results
3. On the screen Did you receive Social Security or Railroad Retirement benefits in 20XX? answer Yes and select Continue
4. On the next screen, check the box beside Social Security benefits (Form SSA-1099), then enter the amounts from your form(s) in the boxes provided
5. When you get to the screen "Did you receive any lump-sum payments?" answer "yes".
6. For "What year was the lump-sum payment for?" enter 2021. The program will guide you to enter each year separately  

For the next steps, you will need the info from 2020 and 2021 tax returns and SSA-1099 forms. Entering this info will help TurboTax determine how it will be taxed.

After you enter your lump-sum Social Security payment information, TurboTax will automatically figure out what, if any, taxes you owe due to the lump-sum payment.

[samlrmn]

I've already done all the steps you have described. After entering the previous year's lump some payments as you described above, my question is this. If our adjusted gross income, plus the lump sum payment for each year is taxed at 85%, do we only get taxed for the 85% on the previous years? After entering into the previous years returns on the worksheet, we are being taxed for the full amount. I hope I'm wording the question correctly.

[DaveF1006]

If you entered the information correctly, you will be taxed differently on each year you received the lump payments for.  For an example, if you entered four year of lump sum payments, the tax assessed will be different for each year unless the AGI was the same for each year or nearly the same.

For an example, if your combined income plus one-half of you SS income is above $34,000 in 2022, then you may be assessed the 85% taxable income rate. If your combined income was say $25,000(which includes 1/2 of your SS income), then  tax will be assessed up to 50% of the taxable income rate.   

[samlrmn]

I understand how the calculations are made. However with everything entered correctly, it is still taxing our income for previous years at 100%  instead of the 85%. When I go to the review section it brings up errors in the worksheet, and will not accept the correction.

[fanfare]

enter all your total benefits as a 2022 benefit.

This is the lump sum election.

it may not be the most favorable but to do the other calculation you need your tax returns from those years.

it will be taxed 85% which is better than 100%

@samlrmn 

[samlrmn]

Again, either I'm not explaining correctly, or people who are answering aren't understanding. I have entered ALL the numbers correctly. I am aware that I will be taxed 85% from previous years. My problem is that the software is taxing the amounts 100%.

[fanfare]

work with TurboTax Support if you want the program to calculate correctly after you have entered everything correctly.

OR, wait for a few more automatic TurboTax updates.

[fanfare]

If you do it the way I suggested, the years 2020 and 2021 are not relevant.

@samlrmn