SS Disability lump sum payment

See page 10 of Publication 915. You can't amend, but you may be able to reduce the tax effect.

-- Phil Marti Clarksburg, MD

See attached from the IRS website FAQ

I received social security benefits this year that were back pay for prior years. Do I refile my returns for prior years? Are the back benefits paid in this year for past years taxable for this year? You must include the taxable part of a lump-sum (retroactive) payment of benefits received in the current year in your current year's income, even if the payment includes benefits for an earlier year. Generally, you use your current year's income to figure the taxable part of the total benefits received in the current year. 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 the taxable portion of your benefits. Refer to Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for a detailed explanation of the election and worksheets.

You can't amend but you can go back in time and recalculate each year's tax bill and then use the calculation that has the lowest tax. See IRS Pub 915 on Page 10 "Lump-Sum Election."

Well you sure came to the right place to ask this question!

You'll notice on the SSA 1099 total amount in the pink block top right. Then a breakdown of those yearly amounts lower left. And if you had had to have legal counsel to obtain the arrearages, 5,300$ attorney fee somewhere on the form. There is a procedure and you makes your choice.

1. lump it all on 2006 return regular way. And if your marginal tax brackets for all years in question are the same, might as well do it that way.
2. Use the LSE (lump sum election) to compute separates taxes on each year then add same to your 2006 return. For information on this see publication 915. I did this for two clients already this year.
3. Drive north of your house about, oh... 10 miles? to Woodlawn, enter the building and bang on receptionist's desk and tell them point blank, it's UNFAIR, and I ain't goin pay no tax on this
4. hmmm... Engage suitable professional and affordable help in your area, either an Enrolled AGent (EA) or Certified Public Accountant (CAP). Ask what the fee is first.

(grin)

ChEAr$$, Harlan Lunsford, EA n LA

Moderator: What would I do without you, Harlan? I have already done #4. But for #3, why go to Woodlawn when I can bop into the IRS Office in Ball-a-mer with a reporter for the Noo Yawk Times in tow and do the same thing. When the IRS asks for a cite in support for my position, may I use your name?

Of course, the Noo Yawk Times reporter will probaly contact you so he can include your address and phone number in his story. ROTFLMAO

Is SS disability taxable in the first place? All of it? Seth

You cannot amend the prior years but you compute your 2006 tax using the lump sum election (LSE). The LSE allows you to figure the taxable portion of the lump sum based on the respective years to which it applies. If 85% of it would have been taxable in each of the prior years, the LSE won't benefit you. Frederick Lorca

It's the same calculation as for SS retirement benefits. Supplemental Security Income (SSI) is exempt.

-- Phil Marti Clarksburg, MD

Put him on notice then, that trespassers will be persecuted. (shot) grin

ChEAr$, Harlan

Moderator: I will tell him that and suggest I put a kiosk on public property in front of your office with a sign stating "The New York Times is here to interview brilliant taxpreparer."