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11 February 2021 / Personal Taxes

How to Use a 1099-R Form

11 February 2021 > Personal Taxes

When tax season rolls around, it might feel like you’re swimming in tax forms. While that may be true, it’s essential to pay attention to these forms, as they contain important information that the IRS wants you to report on your tax return. 

Form 1099-R? That’s going to be an important one to take note of if you had distributions from any retirement, pension, annuity, or insurance contracts. 

So what is a 1099-R, and how do you use it? We cover everything you need to know about this tax form. 

What is a 1099-R?

A 1099-R is an information return that is filed with the IRS when an eligible distribution has been made to you. You’ll use this information to help complete your annual personal tax return (IRS Form 1040). Like with other 1099 forms, you’ll receive a copy of the form, and the IRS will also receive a copy of the form. 

When Will You Receive a 1099-R?

If you’re in retirement and taking distributions from your retirement account, you can expect to receive a 1099-R. But that’s not the only situation when you’ll receive one. You should expect to receive a 1099-R if you received $10 or more in distributions from:

  • Profit-sharing or retirement plans

  • Individual Retirement Accounts (IRAs)

  • Annuities

  • Pensions

  • Insurance contracts

  • Survivor income benefit plans

  • Permanent disability payments from life insurance contracts

  • Charitable gift annuities

You’ll receive a 1099-R if you’ve had one of the above events, even if the distribution isn’t taxable. Some common examples of when you can expect to receive a 1099-R include:

Distributions during retirement

You’ve worked hard for years, and now it’s time to sit back and take a distribution from your pension or retirement plan. In some cases, you may have made pre-tax contributions to your retirement. If that’s the case, you’ll now need to pay taxes as you take your distribution. You’ll receive a 1099-R, which will show any distributions you took as well as information about whether the distribution is taxable and if any tax has been withheld. 

Early retirement distributions

Maybe you weren’t able to wait until retirement, and you dipped into your funds early. You can expect to receive a 1099-R in the mail detailing this distribution. But watch out: these distributions likely come with an extra 10% penalty you wouldn’t be hit with if you waited until retirement age to take a distribution. 

401(k) loans

If you needed just a little money to help tide you over, you might have pulled that money out of your 401(k) in the form of a loan. But if you then end up not repaying the loan, the money that you borrowed will be treated as an early retirement distribution. You can expect to receive a 1099-R in the mail letting you know just how much of that loan ended up becoming a distribution. 

Retirement plan rollover

If you move your retirement plan funds from one custodian to another, this is a tax-free event (when done correctly). But even if you’re just moving money from one place to another, the IRS still wants to be notified of this move. Even though you won’t be required to pay taxes, you should still expect to receive a 1099-R in the mail. 

What’s the deadline to receive a 1099-R?

Distributors are required to send 1099-R forms to the people who need them by January 31 of the year following the tax year, like most other 1099 forms. For the tax year 2020, you can expect to receive your 1099-R by January 31, 2021.  

If you’re expecting one and you haven’t gotten one by early February, you may want to contact the responsible party to see if there’s been a mistake. 

What is on Form 1099-R?

Form 1099-R may seem a little complicated at first, but it includes a lot of space for information to be included if it’s applicable to your situation. On Form 1099-R, you’ll find information about the payer, the recipient (you), and the distribution (box 1-19). Not every box will include information — only the ones relevant to your specific distribution. 

On Form 1099-R, you’ll find:

Payer’s information: name, address, and taxpayer identification number (TIN)

Recipient’s information: name, address, and TIN

After that, there are 19 boxes that provide details of your distribution. Not every box will include an amount, only the boxes that are relevant to your situation. 

  • Box 1: gross distribution, the total amount that was distributed to you

  • Box 2a: the amount of the distribution that is taxable

  • Box 2b: the payer will check whether they were able to determine the amount of the distribution that was taxable and whether it was a total distribution of your balance

  • Box 3: any capital gains received, which is also included in the distribution total

  • Box 4: any federal income tax that was withheld from the distribution

  • Box 5: the amount of the distribution that is attributable to employee contributions, designated Roth contributions, or insurance premiums

  • Box 6: net unrealized appreciation in employer’s securities

  • Box 7: distribution code to detail the type of distribution received

  • Box 8: other

  • Box 9a: your percentage of total distribution

  • Box 9b: total employee contributions

  • Box 10: amount allocable to IRR within five years

  • Box 11: first year of designated Roth contributions

  • Box 12: checkbox for FACTA filing requirement

  • Box 13: date of payment

  • Box 14: State tax withheld

  • Box 15: payer’s state identification number

  • Box 16: State distribution amount

  • Box 17: local tax withheld

  • Box 18: name of locality

  • Box 19: local distribution amount

You can see an example of a 1099-R form on the IRS website

What should you do with a 1099-R?

The first thing you’ll want to do when you receive your 1099-R is to ensure all of the information matches your records. Remember, the IRS receives a copy of the form, and you’ll need to include this information on your tax return, so double check to make sure everything is right. If things don’t look right, contact the company that provided you with the form and ask them to check into the discrepancy. They’ll either help you understand why the information they reported is correct or issue you a new form.

Once you know your 1099-R form (or forms) is correct, you’ll need to include that information on your tax return. Follow instructions to make sure that the distribution information gets input on the correct line on your personal tax return, form 1040. 

Remember, not all distributions are taxable. You’ll want to make sure to follow the instructions, so you are able to compute the right amount of income tax that is due on the distribution. 

It can be challenging to determine what percentage of your 1099-R reported income is taxable and how to tax it appropriately. Many people who receive a 1099-R form choose to work with a professional tax preparer to make things easier on themselves and reduce the chances of committing an error. 

If you’re getting ready to complete your tax return and you’re not sure what to do with your 1099-R, or if you’re just overwhelmed by the sheer number of things you still need to do for your taxes, don’t worry—Taxfyle can help. Get started with an individual tax return today, and feel confident about your taxes. 

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Erica Gellerman

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