This article will help you calculate and enter your client's current year taxable social security income when they received payments for prior years in the current year. ProConnect Tax cannot calculate the taxable amount automatically in this situation.
About the Lump-Sum Election:
You must include the taxable part of a lump-sum (retroactive) payment of benefits received in the current year in your current year income, even if the payment includes benefits for an earlier year. Generally, you use your current year income to figure the taxable part of the total benefits received in the current year. 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 your benefits for the current year (figured without the lump-sum payment for the earlier year).
Because the earlier year's taxable benefits are included in your current year income, no adjustment is made to the earlier year's return. Do not file an amended return for the earlier year.
To calculate the taxable amount:
To enter the Lump-Sum payment in ProConnect Tax:
- On the left-side menu, select Income.
- Click on the SS Benefits, Alimony, Misc. Income screen.
- Enter the Social Security payment in the field, Social security benefits (SSA-1099, box 5).
- Enter the taxable amount in, Taxable social security & railroad retirement [Override].
- This override is necessary to calculate the taxable amount manually for lump sum payments.
- Enter a 1 in 1=lump-sum election for social security benefits.
The program will print "LSE" on Form 1040, line 5.