Taxpayers must include the taxable part of a lump-sum (retroactive) Social Security payment received during a tax year in that year's income, even if the payment includes benefits for an earlier year. However, this may cause the SS benefits to be taxed at a higher rate than they would have been if they had been reported in the prior year. To adjust for this inequity, a taxpayer may choose to use the lump-sum election if it generates a lower tax.

Lump sum death benefit payments should not be confused with retroactive lump-sum payments. In some cases the SSA and the RRB will pay beneficiaries a lump-sum death benefit which is NOT subject to taxation.

To determine if the lump-sum election is beneficial, complete the worksheets provided in IRS Publication 915. Revoking the lump-sum election - Once elected, the election can only be revoked with the consent of the Internal Revenue Service.

Most preparation software provides specific entries to accommodate the lump sum election. When "LSE" is used it is necessary to check 6c on Form 1040 or Form 1040SR. The IRS instructions indicate there is no requirement to include the completed worksheets with the filed return.