FAQ 6 - Social Security Income: Back Payments

This is archived information that pertains only to the 2005 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

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.

For an American citizen residing in Canada using Form 1040A, is the taxable amount of U.S. social security benefits $0.00 due to the Canada-U.S. tax treaty?

Under the 1997 protocol to the Canada - U.S. tax treaty, the Canadian and U.S. governments agreed to return to a residence-based system under which social security benefits are taxable exclusively in the country where the recipient resides. As a result, the entry for taxable social security is $0.00.

In addition to U.S. Social Security, I also receive British Social Security. How should I report the British Social Security income?

Under the current U.S.-United Kingdom income tax treaty which became effective 2003, social security income is taxable only by the country of residence. If you are a resident of the U.S. for tax purposes, the income would be reported and taxed in the U.S. You would not treat the income as U.S. social security benefits. The entire amount would be taxable as pension and annuity income on your U.S. tax return. Your "investment in the contract" for purposes of determining the portion of each payment that is taxable would be $0. Under the prior treaty with the UK, social security benefits were treated the same way.

I retired last year, and started receiving social security payments. Do I have to pay taxes on my social security benefits?

To determine whether any of your benefits are taxable, compare the base amount for your filing status with the total of one half of your social security payments plus all your income from other sources, including tax exempt interest. If you are married and file a joint return, you must combine your incomes and your social security and equivalent tier 1 railroad retirement benefits when figuring the taxable portion of the benefits.

The taxable amount of the benefits is figured on a worksheet in the Form 1040 (PDF) or Form 1040A (PDF) instruction book, or in Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Refer to Tax Topic 423, Social Security and Equivalent Railroad Retirement Benefits, for base amounts, and additional information regarding taxability and reporting requirements.

Are social security survivor benefits for children considered taxable income?

The person who has the legal right to receive the benefits must determine whether the benefits are taxable. For example, if you and your child receive benefits, but the check for your child is made out in your name, you must use only your part of the benefits to see whether any benefits are taxable to you. One half of the part that belongs to your child must be added to your child's other income to see whether any of those benefits are taxable to the child.

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