Submitted By: someone
Answered: April 26, 2018 9:50 pm

Can I use income averaging for a lump-sum payment from Social Security for disability covering four years?

There is no income averaging option for individuals (other than farmers and fishermen for their business income). However, you can make an election on how to determine the taxable portion of the lump-sum benefits received in 2018:

  • You may treat the entire payment as benefits for 2018, or
  • You may allocate the benefits between 2018 and the earlier years.

Depending on your income in 2018 and in the earlier years, allocating the lump-sum payment between the years may result in a lower taxable percentage than if the entire amount was treated as 2018 benefits. Choose the option that is better for your situation using the worksheets in IRS Publication 915.

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Tax Glossary

Cash method of accounting

Reporting income when actually or constructively received and deducting expenses when paid. Certain businesses may not use the cash method.

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