Submitted By: Paul
Answered: November 18, 2016 8:35 am

I received a lump-sum benefit from Social Security. Is it taxable?

Lump-sum benefits are treated the same as monthly benefits. Thus, if your income is low enough, no benefits are includible in gross income. Otherwise, the benefits may be includible in gross income to the extent of 50% or 85% of the amount received.

Even though the lump-sum benefits may relate to prior years, you take them into account in the year in which they are received as reported to you on Form SSA-1099. However, there are two ways to figure the amount that’s currently includible in gross income:

  • Treat the lump sum as a current year benefit and then, using your current year income, follow the regular rules to figure out how much of the benefit must be included in gross income
  • Make an election to figure the taxable part of the lump-sum benefit separately from current benefits using the income for the earlier year. A worksheet in IRS Publication 915 can be used to make this calculation
Tax Glossary

Passive activity loss rules

Rules that limit the deduction of losses from passive activities to income from other passive activities. Passive activities include investment rental operations or businesses in which you do not materially participate.

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