Publication 915 |
2000 Tax Year |
Lump-Sum Election
You must include the taxable part of a lump-sum (retroactive)
payment of benefits received in 2000 in your 2000 income, even if the
payment includes benefits for an earlier year.
This type of lump-sum benefit payment should not be confused with
the lump-sum death benefit that both the SSA and RRB pay to many of
their beneficiaries. No part of the lump-sum death benefit is subject
to tax.
Generally, you use your 2000 income to figure the taxable part of
the total benefits received in 2000. However, you may be able to
figure the taxable part of a lump-sum payment for an earlier year
separately, using your income for the earlier year. You can elect this
method if it lowers your taxable benefits.
Under the lump-sum election method, you refigure the taxable part
of all your benefits for the earlier year (including the lump-sum
payment) using that year's income. Then, you subtract any taxable
benefits for that year that you previously reported. The remainder is
the taxable part of the lump-sum payment. Add it to the taxable part
of your benefits for 2000 (figured without the lump-sum payment for
the earlier year).
Since the earlier year's taxable benefits are included in your 2000
income, no adjustment is made to the earlier year's return. Do
not file an amended return for the earlier year.
Will the lump-sum election method lower your taxable
benefits?
To find out, take the following steps.
- Complete Worksheet 1 in this publication.
- Complete Worksheet 2 and Worksheet 3 as appropriate. Use
Worksheet 2 if your lump-sum payment was for a year after 1993. Use
Worksheet 3 if it was for 1993 or an earlier year. Complete a separate
Worksheet 2 or Worksheet 3 for each earlier year for which you
received the lump-sum payment.
- Complete Worksheet 4.
- Compare the taxable benefits on line 18 of Worksheet 1 with
the taxable benefits on line 20 of Worksheet 4.
If the taxable benefits on Worksheet 4 are lower than the
taxable benefits on Worksheet 1, you can elect to report the lower
amount on your return.
Making the election.
If you elect to report your taxable benefits under the lump-sum
election method, follow the instructions at the bottom of Worksheet 4.
Do not attach the completed worksheets to your return. Keep them with
your records.
Once you elect this method of figuring the taxable part of a
lump-sum payment, you can revoke your election only with the consent
of the Internal Revenue Service (IRS).
Lump-sum payment reported on Form SSA-1099 or
RRB-1099.
If you received a lump-sum payment in 2000 that includes benefits
for one or more earlier years after 1983, it will be included in box 3
of either Form SSA-1099 or Form RRB-1099. That part of any
lump-sum payment for years before 1984 is not taxed and will not be
shown on the form. The form will also show the year (or years) the
payment is for. However, Form RRB-1099 will not show a breakdown
by year (or years) of any lump-sum payment for years before 1998. You
must contact the RRB for a breakdown by year for any amount shown in
box 9.
Example
Jane Jackson is single. In 1999 she applied for social security
disability benefits but was told she was ineligible. She appealed the
decision and won. In 2000, she received a lump-sum payment of $6,000,
of which $2,000 was for 1999 and $4,000 was for 2000. Jane also
received $5,000 in social security benefits in 2000, so her total
benefits in 2000 were $11,000. Jane's other income for 1999 and 2000
is as follows.
Income |
1999 |
2000 |
Wages |
$20,000 |
$ 3,500 |
Interest income |
2,000 |
2,500 |
Dividend income |
1,000 |
1,500 |
Fully taxable pension |
|
18,000 |
Total income |
$23,000 |
$25,500 |
To see if the lump-sum election method results in lower taxable
benefits, she completes Worksheets 1, 2, and 4 from this publication.
She does not need to complete Worksheet 3 since her lump-sum payment
was for years after 1993.
Jane completes Worksheet 1 to find the amount of her taxable
benefits for 2000 under the regular method. She completes Worksheet 2
to find the taxable part of the lump-sum payment for 1999 under the
lump-sum election method. She completes Worksheet 4 to decide if the
lump-sum election method will lower her taxable benefits.
After completing the worksheets, Jane compares the amounts from
line 20 of Worksheet 4 and line 18 of Worksheet 1. Because the amount
on Worksheet 4 is smaller, she chooses to use the lump-sum election
method. To do this, she prints "LSE" to the left of line 20a on
Form 1040. She then enters $11,000 on line 20a of Form 1040 and her
taxable benefits of $2,500 on line 20b.
Jane's filled-in worksheets (1, 2, and 4) follow.
Jane's Worksheet 1
Jane's Worksheet 2
Jane's Worksheet 4
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