Minimizing the Income Tax on the Receipt of Lump-Sum Social Security Benefits

Sometimes a taxpayer will receive Social Security benefits in a lump iznosu.Porezni liable to pay income tax on up to 85 percent of these benefits. However, the taxpayer may make a choice under Article 86 (e) of the Internal Revenue Code to reduce income tax to receive the lump-sum Social Security benefits.

Why should the taxpayer get a lump-sum Social Security benefits? Taxpayers could receive additional security income (SSI), which is tax free. Then, Social Security Administration determines that the taxpayer should be receiving Social Security disability benefits for the past few years, instead of SSI. Another reason that taxpayers can get Social Security benefits in a lump sum to the Social Security Administration may have initially denied the request of the individual for social security disability benefits, but one win those benefits on appeal.

Social Security benefits taxable for taxpayers with relatively low amounts of adjusted gross income. At moderate levels of adjusted gross income, 50 percent of Social Security benefits are taxable. At a high level of adjusted gross income, 85 percent of social security benefits are taxable.

The inclusion of a graduated system of social benefits in gross income and the progressive nature of income tax rates can have a very bad influence on individuals who receive lump-sum Social Security benefits. Such individuals have to pay a much higher amount of income tax than they would if they received Social Security benefits when they should have received them. If the taxpayer does not undertake to make the election permitted Section 86 (e) of the Internal Revenue Code, that is what will happen.

Sometimes the taxpayer does not receive any money for a lump sum payment. For example, if the taxpayer is receiving SSI and Social Security Administration determines that the taxpayer should be receiving Social Security disability benefits, Social Security Administration disability benefits will reduce the amount SSI pays obveznik.Porezni tax payer will receive a Form 1099-SSA shows the amount lump sum social Security disability benefits, and yet the taxpayer has received little, if any, money.

Section 86 (e) of the Internal Revenue Code allows a taxpayer who receives a lump-sum social security benefits for the election to include in gross income only the sum of Social Security benefits that the taxpayer would include in gross income in prior years, if the taxpayer received used in the years to which the lump-sum payment can be pripisati.Porezni taxpayer may also make elections, if the taxpayer received a railroad retirement benefits in a lump sum amount.

Section 86 (e) (2) (b) states that the taxpayer should make a choice in the manner prescribed by the Secretary of the Treasury in regulations. However, Secretary of the Treasury has not issued any regulations under Article 86 Once a taxpayer makes the election, the taxpayer can not revoke it with the consent of the IRS.

Since there are no regulations providing for the election, the taxpayer should make a choice according to IRS guidelines provided in IRS Publication 915, "Social Security and Equivalent Railroad retirement." IRS Publication 915 has a useful list and other information about making this choice. Taxpayers who receive Social Security benefits or Railroad retirement in one lump sum should consult IRS Publication 915 and determine whether the election will reduce your taxes.