lump sum social security payment

[QAjoA]

I received a retroactive lump sum social security payment of about $10,000mdue to the Social Security Fairness Act. Some is from 2024. How will I claim it and how will it be taxed?

[xmasbaby0]

In January you will receive a SSA1099 to enter.   That document from SS will show the amount of SS you received for 2025.    You will enter it and let the software calculate ow much--if any--of it is taxable.    The new tax laws did not change in regard to the fact that up to 85% of your Social Security can be taxable if you have other sources of income.  Since you were affected by the Fairness Act, we can safely assume you are receiving some other income such as a pension from teaching or some other work you did that was previously affected by the WEP rules that reduced the amount of SS you could receive while also getting a pension.

Up to 85% of your Social Security benefits can be taxable on your federal tax return.  There is no age limit for having to pay taxes on Social Security benefits if you have other sources of income along with the SS benefits.  When you have other income such as earnings from continuing to work, investment income, pensions, etc. up to 85% of your SS can be taxable. 

 What confuses people about this is that before you reach full retirement age, if you continue working while drawing SS, your benefits can be reduced if you earn over a certain limit. (For 2021 it was  $18,960.  For 2022 it was  $19,560  —  for 2023 $21,240)  For 2024, $22,320.  For 2025 it will be $23,400

After full retirement age, no matter how much you continue to earn, your benefits are not reduced by your earnings; your employer will still have to withhold for Social Security and Medicare.  If you work as an independent contractor then you will pay self-employment tax for Social Security and Medicare.

To see how much of your Social Security was taxable, look at lines 6a and 6b of your 2024 Form 1040

https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable

You need to file a federal return if half your Social Security plus your other income is

Single or Head of Household      $25,000

Married Filing Jointly                  $32,000

Married Filing Separately            $0

Some additional information:  There are 9 states that tax Social Security—Colorado, Connecticut,, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont  and West Virginia These states offer varying degrees of income exemptions, but two mirror the federal tax schedule: MN and VT.

IF YOU WANT TO HAVE TAX WITHHELD FROM YOUR SOCIAL SECURITY BENEFITS

https://www.ssa.gov/manage-benefits/request-withhold-taxes

https://www.irs.gov/forms-pubs/about-form-w-4-v

[rjs]

I assume that you received the payment in 2025. You will report the entire lump-sum payment on your 2025 tax return. You do not amend your 2024 tax return. There is a "lump-sum election" that might reduce the amount of the payment that is taxable. Essentially what the lump-sum election does is calculate how much of the payment for 2024 would have been taxable if you had reported it on your 2024 tax return, and then include that amount in the taxable Social Security on your 2025 tax return.

Your SSA-1099 for 2025 will show how much of the payment is for 2024. After you enter the SSA-1099 in TurboTax, it will ask if you received any lump-sum payments. If you answer Yes it will then ask for information about the lump-sum payment for 2024. It will also ask for information from your 2023 SSA-1099 (if you got one) and your 2023 tax return. After you enter all the information, TurboTax will calculate whether you benefit from using the lump-sum election. If so, it will make the appropriate entries on your Form 1040.

[Bomar]

The Turbo Tax section of lump sum social security payments is confusing. I am the person with a lump sum. My husband also receives social security. I’m asked to enter how much social security he received in 2024. He received no lump sums. Is the Turbo Tax program counting this income twice?

[DoninGA]

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@Bomar wrote:

The Turbo Tax section of lump sum social security payments is confusing. I am the person with a lump sum. My husband also receives social security. I’m asked to enter how much social security he received in 2024. He received no lump sums. Is the Turbo Tax program counting this income twice?

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Since he did not receive a lump sum payment you can either leave box for entry blank or enter 0

[CatinaT1]

When entering this, you should answer "Yes" to the question "Did you receive any lump-sum payments?" in TurboTax. Answering "Yes" does not double-count your income; instead, it triggers a special IRS calculation known as the Lump-Sum Election, which can actually reduce your tax bill.

When you receive a lump-sum payment for a prior year (like the 2024 windfall repayment received in 2025), the IRS requires the full amount to be reported in the year you received the check. However, they allow you to use the "lump-sum election" method to prevent that large payment from pushing you into a higher tax bracket.

TurboTax uses the total from Box 3 as your starting point. When you select "Yes," the software will ask you to break down how much of that Box 3 amount was for 2024. It then recalculates your 2025 tax as if that portion had been received back in 2024.

If your income was lower in 2024 than in 2025, or if the lump sum would make more of your Social Security taxable this year, this election ensures you only pay the amount of tax you would have owed if you had received the money on time.

TurboTax will run the numbers both ways—taxing it all in 2025 versus using the lump-sum election—and will automatically apply the method that results in the lowest tax for you.

To complete this section accurately, have your 2024 Tax Return handy. TurboTax will ask for:

• The specific portion of the 2025 payment attributed to 2024 (found in the Description of Amount in Box 3 on your SSA-1099).
• Your 2024 Filing Status.
• Your 2024 Adjusted Gross Income (AGI).
• Any Tax-Exempt Interest you reported in 2024.

Follow these steps to ensure the election is applied:

1. In the Social Security (SSA-1099) section, enter the full amounts exactly as they appear on your 2025 form.
2. On the screen "Did you receive any lump-sum payments for 2024 or earlier?", select Yes.
3. Enter 2024 as the year the payment was for.
4. Enter the amount designated for 2024 from your form's description.
5. Follow the prompts to enter your 2024 return data.
6. Once finished, you can verify the result by viewing your 1040 (select Tax Tools > Tools > View Tax Summary > Preview my 1040). You will see a checkbox on Line 6c indicating the Lump-Sum Election was used.