The 1099-R tax form is sent to you by your employer when you’ve been paid $10 or more from sources that did not require any effort on your part. This passive income can include money paid to you from pensions funds, retirement benefits, annuities payouts or profit sharing. It can also include payments made to you from insurance contracts, survivor income benefits and some disability payments. Like the W-2, your employer is required to send the 1099-R tax form to you no later than Jan. 31 of each year.
The 1099-R tax form shows the gross amount of passive income paid to you during the previous calendar year as well as what portion of it is taxable. It also shows how much federal tax has already been withheld and what, if anything, you contributed toward a Roth individual retirement account or insurance premiums.
The 1099-R tax form has three copies. Your employer keeps one, sends you one and sends the IRS one. Unlike the W-2, you do not need to attach a copy of the 1099-R to your tax return. The IRS will sync what you report with what your employer has already reported to them.
How to Report 1099-R on 1040
If you receive an IRS Form 1099-R, the information on it must be transferred to your tax return before you file it. You’ll be filing a Form 1040 or Form 1040A because Form 1040EZ does not have a place to enter 1099-R information. The following applies to 2017 IRS forms. Forms 1040 and 1040A have not yet been published for 2018.
If the amount in box 1 of the 1099-R was money paid to you from an Individual Retirement Account, enter it on Form 1040’s line 15a or Form 1040A’s line 11a. If the money you received was from a pension or annuity, enter it on Form 1040's line 16a or Form 1040A's line 12a.
The taxable portion of box 1 is shown in box 2a of the 1099-R. Enter it on line 15b of Form 1040 for IRA distributions. Use line 16b for pensions and annuities. If you're using Form 1040A, it goes on line 11b or 12b.
The next important number on your 1099-R is in box 4. It’s the amount of federal tax that was withheld by your employer. This amount corresponds to line 64 on Form 1040 and line 40 on Form 1040A – federal income tax withheld from Forms W-2 and 1099. Don’t forget to enter it on your filing form. It will reduce your overall tax debt dollar for dollar.
No Exceptions to 1099-R Reporting
The law requires employers and you to report anything paid to you in addition to your regular wages. The 1099-R is used by employers to notify the IRS of this income and to notify you that it’s been reported to the IRS. There are no exceptions to your reporting 1099-R income on your federal tax return. The same goes for state tax returns. You must include 1099-R income on it.
1099-Rs for Tax Year 2018
Changes in 1099-Rs for the 2018 tax year apply mainly to your employer. For example, your employer must now provide a telephone number on the 1099-R that provides direct access to someone who can answer questions about it. Also, some of the mailing addresses where employers send the IRS their copy of the 1099-R have changed.
One additional change that affects your employer and you is the reporting of certain death benefits. All of the same types of payments to you that were reported on 2017 1099-Rs must be reported on 2018 1099-Rs. But for 2018, payments of reportable death benefits also have to be included, which means you will also have to report them as income. The IRS is still working on defining what death benefits will be reportable, but in the meantime, they have revised the 1099-R to accommodate this additional payment type.
Another change for 2018 is that, if you’re subject to backup withholding, the percentage withheld is lower. It used to be 28 percent. For the 2018 tax year, it will be 24 percent. Backup withholding happens when the IRS requires your employer to withhold taxes from payments that would not normally be taxed. The IRS may order your employer to do this if they don’t have the correct Social Security number for you, or if you underreported interest or dividends on a previous tax return. The IRS does this only after it has mailed you four notices over a 120-day period.
1099-Rs for Tax Year 2017
There were no changes in 1099-Rs for the 2017 tax year from previous years. The same distributions from pensions, annuities, retirement or profit-sharing plans, along with IRA and insurance contracts distributions of more than $10 all had to be reported to the IRS and a 1099-R issued to the employee. Survivor income benefit plans, permanent and total disability payments under life insurance contracts and charitable gift annuities were also reportable as they were in previous years.
Payments that were exempt from reporting also remained the same. Exempt payments included, and still include, workers' compensation and the Department of Veterans Affairs payments.
Caution on Taxable Amount
Very important: if there’s nothing in your 1099-R's box 2a, Taxable Amount, it does not necessarily mean that you don’t owe any tax. It more than likely means that your employer didn't have enough information to determine what the taxable amount should be. If this is the case, you’ll have to figure out the taxable amount yourself. There’s more than one method for calculating it. The IRS Publication 939, General Rule for Pensions and Annuities, can help you determine which one to use. It contains worksheets and explains the criteria that must be met to use the Simplified Method.
IRS Form 1099-R Not Required
Tax-exempt payouts like workers' compensation and Department of Veterans Affairs payments should not be reported on a 1099-R tax form. If you receive a 1099-R for these benefits, immediately notify your employer. If an error was made, get something in writing from your employer that documents it was an error. If necessary, you’ll have something to show the IRS.
Loans taken out from your 401(k) are not considered distributions from your retirement plan so they will not generate a 1099-R. That is, as long as you make your payments and stay with the same employer. If you default on the loan or change employers, it’s considered a distribution, and you will receive a 1099-R for it.
Any Chance of a Refund?
Whether income reported on a 1099-R will ultimately be taxable depends on your circumstances. Your total income, the number of exemptions you claim and deductions you have are factors. If it turns out that your employer took taxes out and you don’t owe any taxes, or they took too much, you’ll get a refund.
Additional 1099-R instructions are available on the IRS website. You might also want to hire a tax professional to help you sort this out. Don’t forget – their fees can be deducted on next year’s tax return.
- IRS.gov: 2017 Instructions for Forms 1099-R and 5498
- IRS.gov: About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (Info Copy Only)
- IRS.gov: Reporting Taxable Distributions
- Investopedia: Form 1099-R
- Intuit Turbo Tax: If you took a loan out from your 401k do you have to file it on your tax return?
- IRS.gov: Topic Number 307 - Backup Withholding
- IRS.gov: 2018 General Instructions for Certain Information Returns (Draft)
- IRS.gov: 2017 General Instructions for Certain Information Returns
- Refer to the instructions on the back of the 1099-R for using information in other boxes. Those deal with a variety of special situations, like distributions to more than one person.
LeDona Withaar has over 20 years’ experience as a securities industry professional and finance manager. She was an auditor for the National Association of Securities Dealers, a compliance manager for UNX, Inc. and a securities compliance specialist at Capital Group. She has an MBA from Simmons College in Boston, Massachusetts and a BA from Mills College in Oakland, California. She has done volunteer work in corporate development for nonprofit organizations such as the Boston Symphony Orchestra. She currently owns and operates her own small business in addition to writing for business and financial publications such as PocketSense, Zacks and Budgeting the Nest.