If Form 1099-R does not show the taxable amount in Box 2a, you may need to use the General Rule explained in Publication 575 and Publication 939 to figure the taxable portion to enter on the tax return. If the payments are from an annuity and the starting date was after July 1, 1986, the taxpayer may be required to figure the taxable part of their distribution using the Simplified Method.
Note: If Form 1099-R does show a taxable amount, the taxpayer may be able to report a lower taxable amount by using the Simplified Method.
When is the Simplified Method Used and Not Used?
The taxpayer must use the Simplified Method if either of these is true:
- their annuity starting date was after July 1, 1986, and on or before November 18, 1996, and the Simplified Method was used last year to figure the taxable portion;
-
their annuity starting date was after November 18, 1996, and BOTH of the following apply:
- They received pension or annuity payments from any of the following plans:
- A qualified employee plan, or
- A qualified employee annuity, or
- A tax-sheltered annuity plan (403(b) plan)
- On their annuity starting date, at least one of the following is true:
- They were under age 75, or
- They were entitled to less than 5 years of guaranteed payments
The taxpayer cannot use the Simplified Method if
- the pension or annuity is a nonqualified plan, or
- they do not meet the conditions described above.
The Annuity Starting Date
For the purpose of calculating the taxable amount of the distribution reported on Form 1099-R, you'll need to know the plan's annuity starting date. The annuity starting date is the later of
- the first day of the first period for which the taxpayer received a payment.
- the date that the plan's obligations became fixed.
Completing the Simplified General Rule Worksheet
To access the Simplified General Rule Worksheet in the individual income tax return in TaxSlayer ProWeb, follow these steps from the Federal Section of the return:
- Select Income
- Select Form 1099-R,RRB,SSA
- Select Add or Edit a 1099-R - Select the 1099-R to edit or select Add a Form 1099-R to add one.
- Between Box 2a Taxable Amount and the 2b Taxable amount not determined check box, you'll see "Are you a public safety officer, made a qualified charitable contribution (QCD) or need to use the simplified worksheet to calculate your taxable amount?" Click the "Click here for options" link.
-
Select to begin the Simplified Method Worksheet. Read
the
qualifications to ensure the taxpayer is eligible to use
the simplified method, and if so select Continue.
- Plan cost at annuity start date - The plan cost at annuity start date is the total after tax contributions in the plan (may be shown in box 9b of the 1099-R). If the taxpayer did not make any after tax contributions, leave the entry blank.
- Starting date of annuity - The annuity starting date is the later of (a) the first day of the first period for which the taxpayer received a payment, or (b) the date the plan's obligations became fixed.
- Death benefit exclusion (if any) - If the taxpayer is the beneficiary of a deceased employee or former employee who died before August 21, 1996, include any death benefit exclusion they are entitled to, up to $5,000 maximum. (This amount will be added to the plan cost at annuity start date.)
- Check here if the annuity benefits are based on the life of the annuitant and a beneficiary - Check the box if this is a joint or survivor annuity.
- Combined calculated age of annuitants at start date - The program will calculate the age.
- Adjust the calculated age of annuitants, if its different - If there is a need to adjust the calculated age, you can enter a positive or negative number here.
- Number of months paid in 20xx - Enter the number of months the taxpayer received payments during the current tax year.
- Amounts previously recovered - Enter the amount that could have been recovered tax free in prior years even if not claimed. Look at last year’s tax return to find this amount.
- Public Safety Officer Exclusion for Health Insurance Premiums - An eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew who is retired because of disability or because they reached normal retirement age) can elect to exclude from income distributions made from their eligible retirement plan that are used to pay the premiums for coverage by an accident or health plan or a long-term care insurance contract. Enter the amount paid for the premiums, up to a maximum of $3,000.
Additional Information:
IRS: Topic No. 411 Pensions – the General Rule and the Simplified Method
IRS: Publication 575 - Pension and Annuity Income
IRS: Publication 939 - General Rule for Pensions and Annuities