Form CSF 1099-R SURVIVOR ANNUITY

[Paul-G-328]

I have an elderly widow who is receiving Survivor annuity benefits from her deceased husbands postal worker annuity 4 - Death Benefit Box 2a reads "unknown" Is this a non taxable annuity? 

[Marsha2020 · Accepted solution]

You will need to fill out the 1099R worksheet at the bottom to find the taxable amount.  It's possible that all the contributions to the pension plan has been recouped, and then the whole amount would be taxable.  But without the worksheet, you won't know that. 

[BobKamman]

In all the cases I have seen, the contributions were recovered under the 3-Year Rule (probably before your time) and the pension is now fully taxable.  I think if retirement was after the new rules became effective, they figured the annual exclusion amount and it shows on the 1099.  And often, that has run out, because the costs were recovered over a period of 15, 20 or 25 years.  Survivor annuities could be more complicated.  

And then there were the people who retired on disability -- their pension counted as sick pay, or something like that, until they reached normal retirement age.  Sometimes the 1099 continued to show no amount in the "Taxable Amount" box.  

[Paul-G-328]

I appreciate the response but my concern is with the Survivor Annuity which  you say is  "more complicated". Where can I find that out? Because she doesnt have to file if she doesnt have to claim that $ 

[BobKamman]

See IRS Pub 721.

https://www.irs.gov/publications/p721

It definitely is not going to be nontaxable. What was she doing before she met you?

[Marsha2020]

The software will compute the taxable amount after you have completed the 1099R worksheet. You will have to ask your client for the information to fill in the worksheet. Also have a look at the 2019 return to find out what’s been done in the past.  Most if not all of this annuity will be taxable imo. I believe you will need to do a 2020 tax return. 

[Paul-G-328]

Husband just died 2 years ago but was retired for many years before that

[BobKamman]

Try to find out if he retired before November 1996. Before that date, the Three-Year Rule applied (not taxable until contributions were recovered, as long as that happened in three years, which it always did, and then 100% taxable).  But OPM said they would start calculating the annual exclusion under the new rules, either "General Rule" or "Simplified Rule," starting in 2000.  

OPM said in 1999 that it planned  "to calculate the tax-free amount of the annuity for each retiring employee and print this amount in a personalized booklet it will provide to each employee shortly after his or her retirement. This offers retirees a way to check their yearly taxable calculation because, although the taxable portion of an annuity changes from year to year with cost-of-living adjustments, the tax-free amount does not."  The decedent may or may not have kept that information, and the widow may or may not know where to find it.