What is a lump sum Social Security payment?
To boost your monthly Social Security payment you can choose to delay the start of your program. If you change your mind, you can then claim back payments.
Most people see Social Security as a programme offering monthly payments for retired Americans and other groups to help towards the cost of essentials. However few know that recipients can also claim a proportion of their entitlement in a lump sum, provided they satisfy certain requirements.
Individuals can begin claiming Social Security payments from the age of 62, but will have to wait until at least the age of 66 (for those born between 1943 and 1954) to receive their full monthly entitlement. This retirement threshold increases in two-month increments for those born after 1954, culminating with an threshold of 67 years old for those born in 1960 or later.
If you wish to increase the size of your Social Security payment, you can defer the support until you turn 70. This boosts your monthly entitlement once you do start to claim it.
To be eligible for the lump sum Social Security payment you must have reached full retirement age; here’s everything you need to know about claiming it…
How does the Social Security lump sum payment work?
The Social Security Administration (SSA) oversees the retirement benefits programme and offers eligible individuals the chance to increase their monthly entitlement by delaying the support until after their full retirement age. Doing so will see your monthly payment increase until you reach the age of 70, at which point your entitlement will remain the same.
However if you opted not to begin your Social Security claim at your designated retirement age, you do still have the option to request a back-payment worth up to six months of your full benefit.
For example if your full retirement age was 66 and you initially chose not to claim Social Security at that point, your future monthly entitlement would increase. However if you then decided that you wanted to initiate the payments, you could also opt to receive up to six months’ worth of back payments in the form of a lump sum.
If your full retirement age benefit was $2,000 per month then you could claim up to $12,000 in a lump payment, provided you had deferred your Social Security payments for at least six months. Of course, doing so would reduce your delayed retirement credits and affect the size of your future payments accordingly.
How would a Social Security lump sum payment affect my tax returns?
While the thought of a lump sum payment is tempting, you should bear in mind the impact that this could have on your tax situation. Typically up to 50% of Social Security benefits are taxed if your combined income exceeds $25,000, and up to 85% if it exceeds $34,000. To be clear, these figures relate to the proportion of payments that are subject to federal income tax, not the rate at which they will be taxed.
Ordering a lump sum Social Security payment could tip you into a higher tax category and mean that you are forced to pay tax a significantly larger part of your income. If the payment pushes your annual income above $85,000 then you will see an increase on your Medicare premiums too.
For more information on how to claim a retroactive payment and the related terms, check out the Retroactive Supplemental Security Income Help Page from the SSA.