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.
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.
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.
To access the Simplified General Rule Worksheet, from the Main Menu of the tax return (Form 1040) select:
- Income
- IRA/Pension Distributions - Select New and enter the Payer Information along with the Gross Distribution in Box 1.
- Check the box labeled SGR located to the right of Line 2a. Taxable Amount.
- You will be asked if you would like to use the Simplified General Rule Worksheet. Select YES.
- Enter the information relating to the annuity into the worksheet.
- 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.
- Are the annuity payments based on the life of the annuitant and a beneficiary? - Answer Yes if this is a joint or survivor annuity.
- 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.
- 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.)
- Age of Recipient at Start Date - The program will calculate the age, however if there is a need to adjust the calculated age, you can enter the adjusted age.
- 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.
- Cost Remaining at Beginning of 20xx - The program will calculate the amount, however if there is a need to adjust the calculated amount, you can enter the adjusted amount.
After completing the worksheet, the calculated taxable amount will carry back to box 2a of the 1099-R entry window.
Note: This is a brief guide on entering information into the Simplified General Rule Worksheet in the TaxSlayer Pro program. This is not intended as tax advice.
Additional Information: