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Level 1

Why does a lump-sum Social Security benefit (received in 2016 for 2015) paid to one spouse trigger a tax in 2016 for prior year 2015 SS benefits paid to the other spouse?

My wife elected to receive Soc Sec benefits at age 68 commencing in 2016 and was also paid a lump-sum in 2016 for 2015, which was included in her 2016 SSA-1099 box 5. After entering this info in Turbo Tax, I was then required to enter our 2015 AGI, tax-exempt interest, and taxable SS--which then suddenly triggered a big jump in FIT due. 

When I undid these last 3 entries as a test, the Federal Review spit out an error, and I was forced to re-enter these 3 entries. 

What is the linkage and logic between her 2015 lump-sum benefit and my 2015 Soc Sec benefits on which I've already paid taxes for 2015??

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Level 7

Why does a lump-sum Social Security benefit (received in 2016 for 2015) paid to one spouse trigger a tax in 2016 for prior year 2015 SS benefits paid to the other spouse?

The lump-sum election allows the option of reporting all of the social security benefits received in the current year to be reported and taxed in the current year.  Then TurboTax will optimize the results based on your entries to decide the tax for the best scenario.

It all takes place on the current year, you do not do an amendment for this particular item.  There is detailed information below

  • 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 2016.  The lowest tax result will be used.  
    Great news: TurboTax does the optimizes the best scenario of tax based on your entries.
    • If the tax is lower if it had been included on the 2015 return there will be an amount added to the tax this year.
    • If the tax is lower by including all of it on the 2016 return then that is where the taxable benefit will be used and it will be taxed as though it was all for 2016.

You can trust that TurboTax is doing the calculations correctly.

View solution in original post

1 Reply
Level 7

Why does a lump-sum Social Security benefit (received in 2016 for 2015) paid to one spouse trigger a tax in 2016 for prior year 2015 SS benefits paid to the other spouse?

The lump-sum election allows the option of reporting all of the social security benefits received in the current year to be reported and taxed in the current year.  Then TurboTax will optimize the results based on your entries to decide the tax for the best scenario.

It all takes place on the current year, you do not do an amendment for this particular item.  There is detailed information below

  • 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 2016.  The lowest tax result will be used.  
    Great news: TurboTax does the optimizes the best scenario of tax based on your entries.
    • If the tax is lower if it had been included on the 2015 return there will be an amount added to the tax this year.
    • If the tax is lower by including all of it on the 2016 return then that is where the taxable benefit will be used and it will be taxed as though it was all for 2016.

You can trust that TurboTax is doing the calculations correctly.

View solution in original post