Lesson 5

1099-R Retirement Income

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Section D

Section

VITA/TCE

TRAINING 101

In this presentation we will cover:

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• 1099-R
• What to watch for
• Determining taxable amount
• Penalties for Early Withdrawal
• Qualified Charitable Contributions
• Public Safety Officer Medical Premium Exclusion

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And how to enter these incomes in Taxslayer

Section D

Types of Retirement reported on a 1099-R

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Volunteer Tip: Get to know your Taxpayer– ask them what type of work did they do that they retired from.

• Slide 48 explains why this could be a beneficial question to ask.
• You might be able to reduce a few taxpayers’ taxes ☺

Form 1099-R

Used to report distributions from the following types of retirement accounts:

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• Traditional IRAs
• Roth IRAs
• 401(k) Plans
• 403(b) Plans
• Pensions and Annuities
• Government Retirement Plans
• Profit-Sharing Plans
• Insurance Contracts with Retirement Benefits

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Reports the total distribution,

taxable amount,

and any federal income tax withheld.

On some forms-WE will have to determine the taxable amount.

Shows:

Total Amount Received during the year

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Might show how much is taxable—sometimes we need to calculate the taxable portion

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Shows if any income tax was withheld

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Form 1099-R

Box 7a The Distribution Code is KEY with 1099-R

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Before entering the return, look to see what code is in Box 7a

(New– box 7b- the checkbox got it’s own box now– a box in a box ☺ )

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PUB 4012 Section D has a list of the codes.

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Form 1099-R

Box7c Identifies Distributions from a Trump Account.

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Box 7d - Earnings on Excess Contributions

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Earnings on excess contributions. Usually informational. Enter Form 1099-R as received and review Box 7a distribution code.

Form 1099-R

New Boxes

Look up the Distribution Code

Make sure it is In-Scope

(meaning we are allowed to do it)

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See if there are special instructions

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Speak to your Coordinator if it says

Out of Scope

1099-R

Codes

Tip–Mark this page with a Post-it

for easy reference during tax season!

Most Common Codes We See

Distribution Code 1-Early Distribution- No known exception

For when a distribution is made before the age of 59½, and no known exception to the early distribution penalty applies.

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The IRS generally imposes a 10% early withdrawal penalty on these distributions.

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We need to have a good conversation with the taxpayer to see if they qualify to have the penalty and any taxes waived.

Distribution Code 1-Early Distribution- No known exception

If the taxpayer placed all or part of the withdrawal into another retirement account within 60 days- then that is called a Rollover and the 10% penalty and income tax can be waived on the amount Rolled Over.

Distribution Code 1-Early Distribution- No known exception

Example Cont.:

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Taxpayer withdrew $15,000

Box 7 code = 1 (under 59 ½)

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Volunteer, ask :“I see you withdrew $15,000 from your retirement account before you were 59 ½.

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You might get a 10% penalty for early withdrawal.

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Do you mind sharing what you did with the funds so I can see might qualify for a waiver of some of the penalty?”

Taxpayer might say something like, “I used it to get caught up on bills, buy a car, for school”, or something else. Let’s say she used it to buy a used car and get caught up on bills.

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Then ask, “Did you use all of it, or did you put some of it back into another retirement account like a 401K, 403, or IRA)?

• If they say yes, you need to then ask if they deposited within 60 days of the withdrawal.
• If they say yes, ask- how much of the withdrawal did you deposit in the retirement account?

In this example, let’s say the taxpayer said she deposited $3,000 into an IRA within 60 day limit. We need to report this correctly so the $3,000 is not taxed or penalized. (I don’t need to see proof—she is ultimately responsible for her return—and all withdrawals and deposits get reported to the IRS so they know if what she says is true or not.

(next screen shows how I will enter this into the system-super easy)

Distribution Code 1-Early Distribution- No known exception

Example Cont.:

If $3,000 was Rolled Over,

then only $12,000 would be Taxable

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$15,000- $3,000 = $12,000

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Then further down the screen indicate the Rollover

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Note: if you forget to enter the smaller number in Box 2 but you do enter the rollover amount you will get this message ☺

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No worries–

just change box 2 ☺ Easy Peasy

Now she will only have to pay income tax and penalties on $12,000 instead of $15,000.

Distribution Code 1-Early Distribution- No known exception

If NOT rolled Over–Depending on the reason, they might qualify for and exception to have part or all of the penalty waived.

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See PUB 4012 Tab H for list of exceptions.

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Types of Exceptions:

Buying First Home

Higher Education

Medical

Emergencies

Disasters and more..

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Review carefully- make sure they qualify –and there are limits to some

PUB 4012 Section H

If they qualify for an exception-

Make sure to add Form 5329 to the Return

PUB 4012 Section H

PUB 4012 Section H

First-Time Homebuyer IRA Exception

• Up to $10,000 lifetime limit per taxpayer.
• No principal residence ownership during the prior 2 years.
• Funds must be used for qualified acquisition costs within 120 days.
• From IRA Account

Domestic Abuse Victim Distribution (DAVD)- Penalty Exception – Slide 1

Key Rules:

• Taxpayer must be a victim of domestic abuse by a spouse or domestic partner.
• Distribution must be taken within one year of the abuse incident.
• Taxpayer may self-certify eligibility-does not have to have been reported to the police.

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10% Penalty can be waived on distribution of:

• Up to $10,000 (indexed for inflation),
• Or 50% of the participant's vested account balance,
• Whichever amount is less

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In regards to Income Tax– distribution is subject to income tax.

If any part of this distribution is repaid within 3 years- they can get any income tax paid refunded to them.

Taxpayer should bring in their account statement for the month before they took the withdraw

Domestic Abuse Victim Distribution (DAVD)- Penalty Exception – Slide 2

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Repayment Rules to get a refund of taxes paid:

• Taxpayer has up to 3 years from the day after the distribution to repay all or part of the funds.
• Taxpayer contacts the IRA or plan administrator accepting the funds and tells them the deposit is a repayment of a Domestic Abuse Victim Distribution under SECURE 2.0. Request that it be coded/accepted as a rollover contribution

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Getting the Income Tax Back After the distribution has been repaid (part or all)

• File Form 1040-X amended return for the tax year the money was originally distributed.
• Report the re-paid amount as a Rollover Contribution

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Qualification For Emergency Expense Exception

What is an emergency? For everyone it is different. (car repair, medical, utility bill, day care expense, mental health holiday, vet bill, new appliance, etc)

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Legal Limits: Up to $1,000 can be exempt from a penalty

• The account cannot be drained; you must leave a matching cushion left in the account.
• Example A. if they took out $3,000 and left only $400 in the account– the maximum you can exempt from penalty is $400.
• Example B. If they took $3,000 and left $25,000 in the account, the maximum you can waive is $1,000

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How often can you use this exemption?

• 1-Year Frequency: You are strictly limited to 1 distribution per calendar year.
• 3-Year Lockout: You are barred from another emergency waiver for 3 years unless you fully repay or contribute back the exempt amount.

New – Starting in 2026 Qualified Long-Term Care Distributions Exception

(not displayed in image)

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New SECURE 2.0 Exception

Qualified Long-Term Care Distributions

• Some retirement plans may allow distributions to pay qualified long-term care insurance premiums.
• These distributions may be exempt from the 10% early withdrawal penalty.
• Available only if the retirement plan offers this feature.

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• Do not assume a taxpayer qualifies simply because they used retirement funds to pay long-term care premiums.

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• Enter the 1099-R as received and follow software prompts.

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• not displayed in image as the PDF of PUB 4012 was not updated yet.

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Tip– Also mark this page with a Post-it

for easy reference during tax season!

Note: all the screen shots in the following scenarios show the older 1099-R as the information presented does not concern the new boxes 7c & 7d

Distribution Code 3-Disability

If the taxpayer is under the Retirement Age for the company they retired from, (just ask them) check the Box

They might get Earned Income Tax Credits –they system will determine if the qualify.

Distribution Code 7-Nornal Distribution

Most common one we see.

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Code 7

1 & 2a is the same- Fully Taxable

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Code 7

Amount in

Box 1 & 2a are different

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no further action is needed.

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See Slide 48 to learn more

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Code 7

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Box 2a is BLANK,

We need to determine taxable amount

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This is an Advanced Return– see your Site Coordinator

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Do not do this tax return until you talk to your Site Coordinator

Code 7

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Box 2a is BLANK,

We need to determine taxable amount

32,420

- 19,622

12,798

12,798

We must use the software to calculate taxable portion

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See Pub 4012

Section D

Code 7

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When Box 2a is BLANK,

AND there is an amount in Box 9b

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• Faith put 15,000 dollars into her retirement account that had already been taxed.
• We don’t want to tax that $15,000 as it comes out –that would be double taxing that money
• The $15,000 doesn’t come out all at once, it is spread out over the “life expectancy” of this retirement plan.
• Taxslayer can calculate the amount for use if you use the Simplified Method

This 1099-R is special

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We have to calculate taxable amount

When Box 2a is blank

AND

There is an amount in 9b

Scenario- Example 4-Explanation of what 9b is…

Taxable amount auto-populates

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IF there is an amount in Box 9B of the tax form, this may need to be changed—click link to calculate correct amount

Using Taxslayer to calculate the taxable amount

Scenario- Example 4-Explanation

See PUB 4012

For guidance

• You will need to know date first check was received from retirement plan
• Was it a joint survivor annuity?
• Age when first check received and if married filing joint, need spouse’s age at time first check received (add together)

Enter amount from Box 9B

When they got their 1^st check

Automatically populates by system

Ex: For a joint and survivor annuity that starts after the death of the employee, use only the survivor’s age. If annuity starts before the death of either beneficiary, use the combined age at start of annuity.

Scenario- Example 4-Explanation

If joint survivor annuity check box

The system calculated the taxable portion.

Scenario- Example 4-Explanation

$19,243

$20,100

3/1/2017

$19,243

Distribution Code 7-Nornal Distribution

Most common one we see.

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Code 7– more examples

46,758

Code 7– more examples

Code G and H – Direct Rollovers

Money goes straight (directly) from one retirement account to another.

• The taxpayer never receives the funds,
• The funds are not taxable
• So there is no mandatory withholding,
• No 60-day rollover rule to worry about,
• And no early withdrawal penalty.

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• It's the simplest and safest way to move retirement money.

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Just enter the form as you see it ☺

Other 1099-R Forms

If there is a value in Box 2a, enter it as you see it

Form CSA 1099-R for Retirees of US Government

If Box 2a is unknown and there is a value in box 9b, use the simplified method we discussed earlier.

Entering in Taxslayer

Entering in Taxslayer

Search for Form

Or on Income Menu

Enter all information from the form into the system.

Entering in Taxslayer

Enter all information from the form into the system.

Qualified Charitable Distributions (QCDs)

QCD: Money sent directly from an IRA to a charity that may not be taxable.

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• Taxpayer must be age 70½ or older when the distribution is made.
• Funds must go directly from the IRA to a qualified charity.

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• A QCD can reduce the taxable portion of the distribution.
• Ask: "Did any of your IRA distribution go directly to a charity?“

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Remember, QCDs use 70½, not the RMD (Required Minimum Distributions) age.

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Volunteer Tip – You’ll Love This!

• If a taxpayer is age 70½ or older and takes IRA withdrawals, ask whether they make charitable donations, including church tithing.
• If their IRA distributions are taxable, they may benefit from making future donations directly from their IRA as a Qualified Charitable Distribution (QCD) rather than withdrawing the funds first.

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• Why? If they withdraw the money first, the distribution is generally included in taxable income and then they donate money that has already been taxed.
• With a QCD, the funds go directly from the IRA to the qualified charity and may be excluded from taxable income.
• This can be especially beneficial for taxpayers who do not itemize deductions.

Public Safety Officers (PSO) Exclusion

Up to $3,000 of distribution might be tax-free if used for medical premiums.

Volunteer Tip –🚔🚒🚑

• Ask retired police officers, firefighters, EMS personnel, and certain corrections officers if insurance premiums are being paid from their pension.

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• Eligible retired Public Safety Officers may exclude up to $3,000 of qualified insurance premiums from taxable pension income.

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• Qualified premiums may include:

Health insurance Dental insurance Vision insurance

Long-term care insurance & Medicare premiums

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What to Look For

• First check Box 5 of the 1099-R for insurance premiums paid through the pension.
• If Box 5 is blank, ask whether the taxpayer pays Medicare premiums.
• Medicare premiums shown on the SSA-1099 may qualify if the taxpayer is an eligible retired Public Safety Officer and the requirements are met.

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A few interview questions could save these retired Heroes money! ☺

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Where the 1099-Rs end up on the 1040

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2026 -- New lines added to the return (4c, 4d, 5c, and 5d)

Make Sure to Use your PUB 4012

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Questions? Unsure?

Just Ask your Site Coordinator.

WOO-HOO!!!

You Did it!

Next Up: Practice #5