1099 R taxable amount

[JD028]

I have a 1099 R with an amount  ($65,110) in box 1,  $0.00 in box 2a and 2b Taxable amount not  determined  is checked.. Distribution Code is 2. How do I determine the taxable amount.? ( I am sure it is not 0.00)

[sjrcpa · Accepted solution]

It's probably the same as Box 1.

[rbynaker]

Is the IRA box checked?  If so, you determine the taxable amount on Form 8606 allocating a pro-rata portion of non-deductible IRA basis (maybe $0) between the distribution amount and the balance in all IRAs on 12/31.

[qbteachmt]

Find out what the event was, so that you can understand Code 2. Code 2 itself relates to there being a known exception the early distribution penalty, but doesn't really tell you more. And the account type or plan type matters. This is from the 1099-R directions, which is what you are following up on:

"Use code 2 only if the employee/taxpayer hasn't reached age 59 & 1/2 and you know the distribution is:

• A Roth IRA conversion (an IRA converted to a Roth IRA).
• A distribution made from a qualified retirement plan or IRA because of an IRS levy under section 6331.
• A section 457(b) plan distribution that is not subject to the additional 10% tax. But see Section 457(b) plan distributions on page 12 for information on distributions that may be subject to the 10% additional tax.
• A distribution from a qualified retirement plan after separation from service in or after the year the taxpayer has reached age 55.
• A distribution from a governmental defined benefit plan to a public safety employee after separation from service in or after the year the employee has reached age 50.
• A distribution that is part of a series of substantially equal periodic payments as described in section 72(q), (t), (u), or (v).
• A distribution that is a permissible withdrawal under an eligible automatic contribution arrangement (EACA).
• Any other distribution subject to an exception under section 72(q), (t), (u), or (v) that is not required to be reported using code 1, 3, or 4.

*Used with code (if applicable): 8, B, D, or P."

"I am sure it is not 0.00"

In most cases it is fully taxable. If there is basis, your taxpayer should provide that info to you.

[JD028]

Thank you for taking your time to respond.

The gentleman is a retired policeman. This is a private municipal pension. He did contribute via payroll deduction over the years...which reduced his taxable W2 gross.  I have reported his Box 1, Gross distribution as taxable ...not withstanding the Unknown taxable figure (0.00) for several years. For some odd reason THIS year I questioned if I was doing the right thing. I filled in the lower sections of the 1099 R worksheet with his age, number of payments, etc.....the response was that the amount in Box 1 (Gross Distribution ) and the taxable amount are the same. 

I am somewhat frustrated by the reporting entity not giving me the information needed ...or the nearly 100% potential that the Box 1 amount is also taxable.

As an aside....I know some of the other retirees in that group....I imagine some will input the box 2a $0.00 taxable amount and, if ever discovered by the IRS, will attempt to recover the consequences from the municipality.

Again, much appreciation for your time and support.

JD

[JD028]

Thank you

[BobKamman]

Doesn't happen to be City of Phoenix, does it?  Occasionally I see a funky 1099-R from them, but the client provides enough facts to verify it's taxable.  The Code 2 might indicate that this was a disability retirement, and some of these public-safety retirement systems are considered equivalent to workers compensation for disabled retirees, at least until they reach age 65.  

Have you contacted the payer's HR department to ask?  

I used to see some of these "zero Box 2" 1099-R forms from union pension plans also, and considered them fully taxable.  But then, I once saw a 1099-MISC for a union pension instead of a 1099-R, and all the retirees received proposed assessment of SE tax from IRS.  

[JD2]

Not Phoenix…..much smaller…but good to know this stuff happens countrywide.

The 1099-Misc story is a nightmare.

Code 2 in this case is for Early Distribution.

Thank you for your time.

[qbteachmt]

"which reduced his taxable W2 gross"

That means there is no basis; everything went in pre-taxed, and everything comes out taxed as ordinary income.

"Code 2 in this case is for Early Distribution."

That's not really what it means. It means he is under 59 1/2, but some situation or scenario means it is not early and the issuer knows that fact. For instance, this one: "A distribution from a governmental defined benefit plan to a public safety employee after separation from service in or after the year the employee has reached age 50."

"This is a private municipal pension."

So, public and local government.

You might have a State that excludes PSO retirement from taxation, or the first $20k of the year, or something.

[JD028]

Thank you....my fault...I misspoke. I was uncertain at the time whether it had reduced gross. I agree, the question would have been unnecessary if I knew that was the case.

[JD028]

Thank you all for responding. I was confused as to why the issuer of the 1099-R entered 0 as the taxable amount (as I was sure that was incorrect)....and also indicated the taxable amount was unknown. I still am. 

The taxpayer researched and previous years listed the same amount in gross distribution and taxable amount with the unknown box checked. I am not sure why the procedure changed but can only guess a new third party is issuing the 1099-Rs.

[George4Tacks]

Although I understand the frustration, it is not the employer's job. There have been several options as to how to recover the employee contributions over the years. What year did they retire\? What was there age at retirement? Did they elect a single life, or some option to pay the surviving spouse? ..... 

[BobKamman]

The instructions for preparers of Form 1099-R state "Generally, you must enter the taxable amount in box 2a. However, if you are unable to reasonably obtain the data needed to compute the taxable amount, leave this box blank."

Leaving the box blank is not the same as entering 0.00, but some computer programmer who probably has returns done at H&R Block was probably offended at some time by not having an entry in that field.  I wonder if IRS accepts whistleblower claims that suggest they audit every recipient of a 1099-R from that source.  If you sent a copy to the payer itself, it might shake loose some action to review their procedures. 

I think I figured out that the "blank Box 2a" I see for Phoenix retirees occurs when they originally retired on disability, even though now past age 65.  There used to be special rules for cost recovery by disability retirees, right?  But those disappeared decades ago.  

[JD2]

I wrote the sender….and they want to talk to me….

You have an interesting point….the overwhelmed IRS receives a 1099-R that says 0.00 taxable (vs. blank) with the Unknown box checked……the taxpayer uses 0.00 because it obviously returns a lower tax. So, is there a program in the IRS computers that determines there is an issue? Does some clerical agent at IRS say…oh the box must have been checked in error. Sounds like a job for AI.