Previous Page: Publication 915 - Social Security and Equivalent Railroad Retirement Benefits - How Much Is Taxable? Next Page: Publication 915 - Social Security and Equivalent Railroad Retirement Benefits - Deductions Related to Your Benefits Use   to find additional instances of index items.

Taxmap/pubs/p915-003.htm#TXMP66723402 Lump-Sum Election

Lump-Sum Election

You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2004 in your 2004 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 2004 income to figure the taxable part of the total benefits received in 2004. 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 2004 (figured without the lump-sum payment for the earlier year).

Because the earlier year's taxable benefits are included in your 2004 income, no adjustment is made to the earlier year's return. Do not file an amended return for the earlier year.

Taxmap/pubs/p915-003.htm#TXMP7d88e1a8 Will the lump-sum election method lower your taxable benefits?

To find out, take the following steps.

1. Complete Worksheet 1 in this publication.
2. 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.
3. Complete Worksheet 4.
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.

Taxmap/pubs/p915-003.htm#TXMP51c1fcd4 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 IRS.

Taxmap/pubs/p915-003.htm#TXMP7335f0aa Lump-sum payment reported on Form SSA-1099 or RRB-1099.

If you received a lump-sum payment in 2004 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 2002. You must contact the RRB for a breakdown by year for any amount shown in box 9.

Taxmap/pubs/p915-003.htm#TXMP2950bd5e Example

Jane Jackson is single. In 2003 she applied for social security disability benefits but was told she was ineligible. She appealed the decision and won. In 2004, she received a lump-sum payment of $6,000, of which $2,000 was for 2003 and $4,000 was for 2004. Jane also received $5,000 in social security benefits in 2004, so her total benefits in 2004 were $11,000. Jane's other income for 2003 and 2004 is as follows.

	Income	2003	2004
	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 2004 under the regular method. She completes Worksheet 2 to find the taxable part of the lump-sum payment for 2003 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. Taxmap/pubs/p915-003.htm#w15320P05

Example. Jane Jackson Filled-in Worksheet 1.  Figuring Your Taxable Benefits                 Keep for your records Before you begin: Is your filing status Married filing separately?                             No.  Go to line 1 below.                       Yes. Did you live apart from your spouse all year?                            No.  Go to line 1 below.                        Yes. Do the following if you file:                             Form 1040:    Enter D to the right of the word benefits on line 20a, then go to line 1 below.                             Form 1040A: Enter D to the right of the word benefits on line 14a, then go to line 1 below.  1. Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099  1. $11,000                 Note: If line 1 is zero or less, stop here; none of your benefits are taxable. Otherwise, go to line 2.             2. Enter one-half of line 1  2.  5,500           3. Enter the total of the amounts from: Form 1040: Lines 7, 8a, 8b, 9a, 10-14, 15b, 16b, 17-19, and 21 Form 1040A: Lines 7, 8a, 8b, 9a, 10, 11b, 12b, and 13  3.  25,500           4. Form 1040 filers: Enter the total of any exclusions/adjustments for: Qualified U.S. savings bond interest (Form 8815, line 14) Adoption benefits (Form 8839, line 30) Foreign earned income or housing (Form 2555, lines 43 and 48, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico Form 1040A filers: Enter the total of any exclusions for: Qualified U.S. savings bond interest (Form 8815, line 14) Adoption benefits (Form 8839, line 30)  4. -0-           5. Add lines 2, 3, and 4  5.  31,000           6. Form 1040 filers: Enter the amount from Form 1040, line 35, minus any amounts on Form 1040, lines 26 and 27. Form 1040A filers: Enter the amount from Form 1040A, line 20, minus any amounts on Form 1040A, lines 18 and 19  6. -0-           7. Is the amount on line 6 less than the amount on line 5?                      No. None of your social security benefits are taxable.                      Yes.  Subtract line 6 from line 5  7.  31,000           8. If you are: Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2004, enter $25,000  8.  25,000               Note: If you are married filing separately and you lived with your spouse at any time in 2004, skip lines 8 through 15; multiply line 7 by 85% (.85) and enter the result on line 16. Then go to line 17.                9. Is the amount on line 8 less than the amount on line 7?                      No. None of your benefits are taxable. Do not enter any amounts on Form 1040, line 20a or 20b, or on Form 1040A, line 14a or 14b. But if you are married filing separately and you lived apart from your spouse for all of 2004, enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b.                      Yes.  Subtract line 8 from line 7  9.  6,000          10. Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2004 10.  9,000          11. Subtract line 10 from line 9. If zero or less, enter -0-. 11. -0-          12. Enter the smaller of line 9 or line 10 12.  6,000          13. Enter one-half of line 12 13.  3,000          14. Enter the smaller of line 2 or line 13 14.  3,000          15. Multiply line 11 by 85% (.85). If line 11 is zero, enter -0- 15. -0-          16. Add lines 14 and 15 16.  3,000          17. Multiply line 1 by 85% (.85) 17.  9,350          18. Taxable benefits. Enter the smaller of line 16 or line 17 18. $3,000               Enter the amount from line 1 above on Form 1040, line 20a, or on Form 1040A, line 14a. Enter the amount from line 18 above on Form 1040, line 20b, or on Form 1040A, line 14b.                 Note: If you received a lump-sum payment in this year that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see whether you can report a lower taxable benefit.

Taxmap/pubs/p915-003.htm#w15320P06

Example. Jane Jackson Filled-in Worksheet 2. Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year After 1993) Enter earlier year     2003   Keep for your records  1. Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for the earlier year, plus the lump-sum payment for the earlier year received after that year  1. $2,000                    Note: If line 1 is zero or less, skip lines 2 through 20 and enter -0- on line 21. Otherwise, go on to line 2.                 2. Enter one-half of line 1  2. 1,000           3. Enter the adjusted gross income reported on your return for the earlier year  3. 23,000           4. Enter the total of any exclusions/adjustments you claimed in the earlier year for: Adoption benefits (Form 8839) Qualified U.S. savings bond interest (Form 8815) Student loan interest (Form 1040, page 1, or Form 1040A, page 1) Tuition and fees (Form 1040, page 1, or Form 1040A, page 1) Foreign earned income or housing (Form 2555 or Form 2555-EZ) Certain income of bona fide residents of American Samoa (Form 4563) or Puerto Rico  4. -0-      5. Enter any tax-exempt interest received in the earlier year  5. -0-           6. Add lines 2, 3, 4, and 5  6. 24,000           7. Enter taxable benefits reported on your return for the earlier year  7. -0-           8. Subtract line 7 from line 6  8. 24,000           9. If for the earlier year you were:        Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), married filing separately and lived apart from your spouse for all of the earlier year, enter $25,000 Married filing separately and lived with your spouse at any time during the earlier year enter -0-  9. 25,000          10. Is the amount on line 8 more than the amount on line 9?                  No.  Skip lines 10-20 and enter -0- on line 21.                  Yes. Subtract line 9 from line 8 10.                 11. Enter $9,000 ($12,000 if married filing jointly for the earlier year; $0 if married filing separately for the earlier year and you lived with your spouse at any time during the year) 11.                 12. Subtract line 11 from line 10. If zero or less, enter -0-. 12.                 13. Enter the smaller of line 10 or line 11 13.                 14. Enter one-half of line 13 14.                 15. Enter the smaller of line 2 or line 14 15.                 16. Multiply line 12 by 85% (.85). If line 12 is zero, enter -0- 16.                 17. Add lines 15 and 16 17.                 18. Multiply line 1 by 85% (.85) 18.                 19. Refigured taxable benefits. Enter the smaller of line 17 or line 18 19.                 20. Enter taxable benefits reported on your return for the earlier year (or as refigured due to a previous lump-sum payment for the year) 20.                 21. Additional taxable benefits. Subtract line 20 from line 19. Also enter this amount on line 19 of Worksheet 4 21. -0-               Note: Do not file an amended return for this earlier year. Complete a separate Worksheet 2 or Worksheet 3 for each earlier year for which you received a lump-sum payment in 2004.

Taxmap/pubs/p915-003.htm#w15320P07

Example. Jane Jackson Filled-in Worksheet 4. Figure Your Taxable Benefits Under the Lump-Sum Election Method (Use With Worksheet 2 or 3)                 Keep for your records Complete Worksheet 1 and Worksheets 2 and 3 as appropriate before completing this worksheet.  1. Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for 2004, minus the lump-sum payment for years before 2004  1. $9,000                  Note: If line 1 is zero or less, enter zero on lines 2 and 11 and skip lines 3 through 10. Otherwise, go on to line 2.            2. Enter one-half of line 1  2. 4,500    3. Enter the amount from line 3 of Worksheet 1  3. 25,500    4. Enter the amount from line 4 of Worksheet 1  4. -0-    5. Add lines 2, 3, and 4  5. 30,000    6. Enter the amount from line 6 of Worksheet 1  6. -0-    7. Subtract line 6 from line 5  7. 30,000    8. Enter the amount from line 8 of Worksheet 1. (Enter -0- if you are married filing separately and lived with your spouse at any time during 2004.)  8. 25,000    9. Is line 7 more than line 8?   No.  Skip lines 9-17 and enter -0- on line 18.   Yes. Subtract line 8 from line 7  9. 5,000   10. Enter the amount from line 10 of Worksheet 1. (Enter -0- if you are married filing separately and lived with your spouse at any time during 2004.) 10. 9,000   11. Subtract line 10 from line 9. If zero or less, enter -0- 11. -0-   12. Enter the smaller of line 9 or line 10 12. 5,000   13. Enter one-half of line 12 13. 2,500   14. Enter the smaller of line 2 or line 13 14. 2,500   15. Multiply line 11 by 85% (.85). If line 11 is zero, enter -0- 15. -0-   16. Add lines 14 and 15 16. 2,500   17. Multiply line 1 by 85% (.85) 17. 7,650   18. Enter the smaller of line 16 or line 17 18. 2,500   19. Enter the total of the amounts from line 21 of Worksheet 2 and line 14 of Worksheet 3 for all earlier years for which the lump-sum payment was received 19. -0-   20. Taxable benefits under lump-sum election method. Add lines 18 and 19 20. $2,500   Next: Is line 20 above smaller than line 18 of Worksheet 1?   No. You cannot use this method to figure your taxable benefits. Follow the instructions on Worksheet 1 to report your benefits.   Yes. You can elect to report your taxable benefits under this method. To elect this method:     Make the following entries on your return: On Form 1040, enter LSE to the left of line 20a. On Form 1040A, enter LSE to the left of line 14a. Enter the amount from line 1 of Worksheet 1 on Form 1040, line 20a, or on Form 1040A, line 14a. If you are married filing separately and you lived apart from your spouse for all of 2004, also make the entries described at the top of Worksheet 1. If line 20 above is zero, follow the instructions in line 9 for No on Worksheet 1. Otherwise, enter the amount from line 20 above on Form 1040, line 20b, or on 1040A, line 14b.

Previous Page:  Publication 915 - Social Security and Equivalent Railroad Retirement Benefits - How Much Is Taxable? Next Page:  Publication 915 - Social Security and Equivalent Railroad Retirement Benefits - Deductions Related to Your Benefits Use     to find additional instances of index items.