What is a lump sum of social security? – Community News
Social Security

What is a lump sum of social security?

Social Security is usually seen as a program that monthly payments for retired Americans and other groups to help with the costs of essentials. But few know that recipients can also claim part of the aid in a lump sumprovided they meet certain requirements.

Individuals can start applying for Social Security benefits from age 62, but will have to wait until at least age 66 (for those born between 1943 and 1954) to receive their full monthly entitlement. This pension threshold is increased in two-month increments for those born after 1954, culminating in an upper limit of 67 for those born in 1960 or later.

To be eligible for the lump sum social security benefit you must have reached full retirement age; here’s everything you need to know about claiming it…

How does the social security lump sum work?

The Social Security Administration (SSA) oversees the retirement program and offers eligible individuals the opportunity to increase their monthly entitlements by deferring support beyond their full retirement age. If you do this, you will see your monthly payment increase until you reach the age of 70, your entitlement remains the same.

However, if you have chosen not to file your Social Security application at your designated retirement age, you still have the option of claiming an arrears of up to six months’ worth of your full benefit.

For example, if your full retirement age was 66 and you initially chose not to claim Social Security, your future monthly entitlement would increase. But if you then decided you wanted to start the payments, you can also: choose to receive up to six months in arrears in the form of a lump sum.

If your full retirement age was $2,000 a month, you could claim up to $12,000 at once, provided you deferred your Social Security payments for at least six months. Of course that would do reduce your deferred pension credits and affect the size of your future payments accordingly.

How does a Social Security lump sum payment affect my tax return?

Although the thought of a lump-sum benefit is tempting, you should consider the impact this could have on your tax situation. Typically, up to 50% of Social Security benefits are taxed if your combined income is over $25,000, and up to 85% if it’s over $34,000. For the avoidance of doubt, these figures refer to the portion of payments subject to federal income tax, not the rate at which they will be taxed.

Ordering a lump sum of Social Security can put you in a higher tax category and result in paying a significantly larger portion of your income in taxes. If the payment pushes your annual income above $85,000, you’ll also see an increase in your Medicare premiums.

For more information about claiming a retroactive payment and related terms and conditions, please visit the SSA’s Retroactive Supplemental Security Income help page.