Lump Sum from Windfall Elimination Repayment

[NYbarb]

I entered the information exactly from my SSA 1099. I entered the total amount from box 3 and 5 including the lump sum paid in 2025 for 2024. Your software says the amount is too high and will not file my taxes. My problem is, I have entered the exact numbers from the 1099 as directed. You should accept the amount on my documents. What am I supposed to do now? 

[JamesG1]

At the screen Tell us about the benefits you received, you entered the amount from box 5.

At the screen How much was your lump-sum payment for 2024? you entered the amount of the lump-sum payment for 2024.

Which amount is the software saying is too high?  Please clarify.

[NYbarb]

James,

In my Description of Amount in Box 3 on my Social Security form it states $5863.00 Paid in 2025 for 2024.

That is what I entered in Lump Sum distribution. Turbo Tax made what ever adjustment you do in the computer program and came up with the amount of $5131. 00 . When I get to the Federal Review I get a message saying that figure can not be more than a figure about $4361 because it can't be more than 85% of what my Social Security was last year. The problem with that is due to Windfall Elimination my monthly cash payment was less than half of what I receive now. I know someone who does taxes who told me they do not put a ceiling on the amount, because the lump sum payment is whatever it is. So, why do you? What do I do now?

[KrisD15]

It may be that claiming the 2024 lump sum at your 2025 tax rate is more beneficial than claiming the 2024 rate on that amount. 

You will report your 1099-R (including the lump-sum)  on your 2025 return, but you do have two options regarding the tax treatment.

1.) You can be taxed on all the income on your 2025 tax return at your 2025 tax rate
OR
2.) You can opt to pay the tax on your 2025 return, BUT AT THE RATE YOU WOULD HAVE PAID ON IT HAD THE INCOME BEEN PROPERLY PAID IN THE PREVIOUS YEAR(S).

If you have no tax on your Social Security Payments, it doesn't matter, but if the additional income puts you into a higher tax bracket, you might want to use that second option.
Basically you figure the tax you would have been charged on your 2024 return for that income and then pay that dollar amount on your 2025 return.
TurboTax can help you determine if this is advantageous for you.

Designate the 2024 amount as a lump-sum payment and proceed through the interview. 
TurboTax will ask for certain numbers from your Tax Year 2024 Federal return (1040) such as the amount of  Social Security you received in 2024 (line 6a) , 2024 taxable Social Security (line 6b) your Adjusted Gross Income (AGI, line 11) and if you had any Tax-Exempt Interest (line 2a) 
 

You, however, ARE taxed on your Social Security Income. 

If you went through this process, and the program is saying that you are in the 85% taxable Social Security for 2025, using 2024 might not be advantageous for you. 

It sounds like, had that lump-sum been paid in 2024, you would have paid tax on 5,131 of that lump-sum income. 

But for 2025, you would be taxed on 4,361 of that lump-sum, so it would be better to pay your 2025 tax on that lump-sum. 

[NYbarb]

Kris and James,

Thank you for taking the time to try to clarify what has happened. While your explanation seems plausible, Turbo Tax offers me no way to do any of this. The process does not exist in their program. I can pay an extra $60 to get tax help for a problem with their software that they have not solved. I say this because there are no further directions for fixing my problem. It does not say, enter this amount and then amend your 2024 tax return.  I believe that amending the figures I received from Social Security would be wrong. Again, no directions about what to do. 

I know that other Tax programs HAVE addressed this successfully. They pull up information to amend the return on the spot. They have no ceiling for the amount Social Security pays in lump sum, because Social Security pays what is owed. If this is a question about the year the amount is filed being an advantage, they the process should take me to those choices. Instead, it is treated as an entry error. 

I have used Turbo Tax since the very first year. I have had an issue here and there over the years. I could always find help. What I am finding  now is a refusal to help with internal process problems with tax changes. I will take my paperwork to another tax preparer. I would rather pay someone who is honest about the cost than a company who has clearly encountered a problem with this issue (I know this because your process changed concerning this issue over the past few weeks.) and still hasn't worked it all out and expects me to pay $60 to inform you of how the process failed me, your customer.  Too bad customer service has been kicked to the curb at this company.