Any way to average/mitigate large retroactive SS payment?

Does this help?

It does look like you have to complete worksheet 2 and 3 for each of the previous years.

Lump-Sum Election

You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2009 in your 2009 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 2009 income to figure the taxable part of the total benefits received in 2009. 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 2009 (figured without the lump-sum payment for the earlier year)

You need to use the worksheets on pages 16, 17, 18 & 19 in IRS Pub 915. Worksheet 2 is used for each year after 1993. Worksheet

3 is used for each year before 1994. As the payment goes back to 1989, that's a lot of worksheets. I hope you have that old tax data. I say this because a request to the IRS for transcripts (free) include current year plus 3 prior years. Requests for copies (not free) is for current plus 7 prior years.

Is it all or none? There's no way the tax data going back to 1989 exists. Can the worksheets be done for whatever years the taxpayer has tax data for, omitting the others,? Or do you have to do it for all years or none?

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Do you know if it's "all-or-none"? In other words, if you don't have the return data for every covered year (which is going to be the case since this is going back to 1989) is the lump-sum election disallowed? Or can you assume max taxability (50% for years where 50% was the max and 85% for years where 85% was the max) for the "missing" years?

Obviously that will limit the benefit of the LSE approach, but it still might allow for a result that's better than the normal approach.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

I think it is reasonable to best guess your income for those years and then determine how much SSA would have been taxable using the law that existed:

50% through '93 and 50%/85% after '93.