After fighting the Social Security Administration for five years, I received a lump-sum payment related to prior years. Can I use income averaging to reduce the amount of benefits includible in gross income?

Income averaging is not available for reporting Social Security benefits. And you don’t amend returns for the years to which the lump-sum payments relate. Include a portion of benefits in the current year, using one of two ways to figure this amount:

• Your current year’s income. The taxable portion of the lump-sum payment is figured under the regular rules for figuring taxable Social Security benefits. Depending on your income, the taxable portion may be zero, or limited to 50% or 85%.
• Your income for the current year and the earlier year(s). With this method, you allocate the lump-sum payment to the years to which it relates. You must elect to use this option, which can be done only if lowers the taxable portion of your benefits. There’s a worksheet in IRS Publication 915 to help you figure the taxable portion of benefits under this election.