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 doesn't calculate the taxable amount automatically in this situation.
About the Lump-Sum Election:
When receiving a lump-sum payment of benefits that includes benefits for an earlier year, you must include the taxable part of it in your current year income. Here are some key points:
- You can use your current-year income to figure out the taxable portion of the lump-sum payment.
- If it's more beneficial, you can use your income from the earlier year instead to calculate the taxable portion.
- To do this, you need to elect the lump-sum election method, which involves refiguring the taxable part of all your benefits for the earlier year (including the lump-sum payment) using that year's income.
- The remainder is the taxable part of your benefits for the current year, without the lump-sum payment for the earlier year.
- Since the earlier year's taxable benefits are already included in your current year income, you don't need to amend your earlier year's tax return.
To calculate the taxable amount:
See IRS Publication 915 to calculate the taxable amount of social security benefits. You'll need to use Worksheets 1-4 in the publication in order to calculate the figure.
To enter the Lump-Sum payment:
- On the left-side menu, select Income.
- Click on the SS Benefits, Alimony, Misc. Income screen.
- Enter the Social Security payment in Social security benefits (SSA-1099, box 5).
- Enter the taxable amount you calculated in Taxable social security & railroad retirement [Override].
- Enter a 1 in 1=lump-sum election for social security benefits.
Go to screen 3, enter LSE in the Form 1040 text input.
