Q: I received a lump sum Social Security benefit. It covered several prior years, how can I report that to IRS?

A: Generally, you use your current year income to figure the taxable part of the total benefits received in that 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 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 the current year (figured without the lump-sum payment for the earlier year).

See IRS Pub 915 for more information on this method.
http://www.irs.gov/publications/p915/index.html

Q: When you have reached the age of 70 is some of Social Security Benefits still taxable?

A: Age is not a factor in taxing Social Security. It depends on the level of taxable gross income, the total amount of Social Security received and your filing status.

Q: My wife and I both retired in September. Our income prior to that was $46,000. SSA payments began in December. Why am I being charged 85% tax on those benefits? Am I missing some instruction on the tax form?

A: You are not being taxed at a rate equal to 85%.
You are paying tax at your normal tax rate on your social security benefits because that is the law. Social security income becomes taxable when your other income plus half of your social security exceeds an amount based on your filing status ($32000 if you filed jointly). Initially, only 50% of your benefit above a certain threshold is taxable. When you exceed the first threshold, up to a maximum of 85% of your benefit can be taxed.

Q: I started receiving social security this year. My only income is from my company retirement, which is $20,465 per year. I pay federal taxes on this income. Will I have to pay any taxes on the income I receive from social security?

A: Some of your social security benefits may be taxable. It all depends on your other income and filing status. Social security only becomes taxable when 1/2 of your benefits are added to other gross income and that total exceeds an amount determined by your filing status. For example, the amount for married filing joint is $32000 and for a single individuals it is $25,000. Use the social security work sheet which is in your tax booklet to calculate the taxable portion if any.

Q: What is the definition of earnings for purposes of the maximum amount I may earn before my social security benefits have to be paid back? I have not reached full retirement age.

A: For purposes of determining whether Social Security benefits must be paid back, a person's earnings for a taxable year are the sum of pay for services as an employee plus all net earnings from self-employment (minus any net loss from self-employment) for that year.

Wages for Social Security purposes are gross wages - wages before any payroll deductions for income tax, Social Security tax, dues, insurance, or other deductions by the employer. Gross wages is also the basis for Social Security credit and for determining whether benefits must be withheld because of earnings.

Nonwork sources of income, such as:

* inheritance payments,
* pensions,
* income from investments,
* IRA distributions,
* interest, or
* other sources;

do not count as wages for the earnings test. The Social Security retirement program insures against loss of earnings from work and not against the failure to have investment income.

The rules for this calculation can become quite complicated especially if you have nonqualified stock options. I advise you to speak with the Social Security Administration directly if you still have questions. 1-800-772-1213

Q: Why do they tell you to put a "D" by the word benefits when you are completing the social security worksheet and what does it stand for?

A: There are different rules to tax social security benefits when the filing status is married filing separate. The D by benefits lets the IRS know that you lived apart from your spouse for all of the tax year which can make a big difference in computing taxable social security benefits.

Q: What income is taxable when determining if social security is taxable? Specifically I am referring to military retirement benefits, federal government employee retirement benefits, and IRA dispositions. Thank You.

A: Military retirement benefits, federal government employee retirement benefits, and IRA dispositions are all taxable. You will receive a From 1099-R from each of the plan administrators. The 1099-R will tell you how much if any distribution is taxable and those amounts get posted as either pension or IRA income. As such, they are all included in the formula for determining whether any social security benefits get taxed.