Why Did I Receive a 1099-R?

Written By Core Group

Did you receive Form 1099-R from the Internal Service Revenue (IRS)? Don’t worry; you are not alone. Every January, the Public Employee Retirement System (PERS) mails IRS Form 1099-R to retirees who received benefits from the year before.
We understand how overwhelming it is to receive paperwork you are not familiar with, especially if it involves taxes. For this reason, our team wrote this article just for you.
If you’re wondering: what is a 1099-R? We have all the answers you need right here. Keep reading to learn everything you need to know about this form. 

What Is a Form 1099-R?

The IRS refers to the 1099 document series of information returns used to report various payment types received throughout the year, and the 1099-R falls under this category. This tax form details an individual’s passive income and distributions from retirement plans, including annuities, insurance contracts, and pensions.
Generally, getting a distribution over $10 qualifies you for a 1099-R. Even if you are not a retiree making withdrawals for your retirement, you might still receive this form. 

Who Receives a 1099-R?

If you received a retirement plan distribution worth at least $10 during the previous tax year, expect a copy of the 1099-R delivered to your doorstep. This form helps the IRS determine how much taxable income individuals owe.
However, even if you are not a retiree making withdrawals for your retirement, you might still receive this form. Below are some distribution types that the government may tax with this document. 

Pension and Annuity Payments

The employer-based retirement benefits employees receive are an extension of their compensation. Generally, you do not have to pay the income tax on your retirement plan contributions until you withdraw them.
Retired and disabled employees or beneficiaries of deceased ones may receive pension and annuity distributions. As a recipient, you should include the entire amount in your taxable income if you did not make any after-tax contributions before distribution. However, if you paid after-tax contributions to your pension or annuity, you will only be liable for paying the tax for a portion of the distribution. 

Rollovers

In retirement accounts, rollovers refer to transferring funds from one account to another.
Generally, the government subjects funds distributed directly to the taxpayer to a 20% federal income tax withholding. This process means contributing additional funds to cover the amount withheld and sent to the IRS to match the total distribution.
If you want to avoid the IRS from taxing such funds as income, you should roll it over into a qualified account within 60 days of distribution. Note that the law generally only allows you to do one indirect rollover in a year, regardless of how many IRA-type accounts you have.
Whether you pay taxes on rollovers or not, you should still report any amount on your tax return. 

Loans

Some organizations let employees take loans against their pension plans. Usually, these companies will have you repay the money you owe with interest, so these transactions do not count as distributions.
However, if you do not make the required loan payments on time, you might receive a Form 1099-R. Below are ways to handle such arrangements:

  • The unpaid portion of the total loan amount will count as a distribution, which you should report on Form 1099-R using the distribution code L. 

  • The IRS will classify these distributions as taxable income, which may be subject to early distribution penalties. 

Early Distributions

In most cases, benefits paid before the taxpayer reaches the age of 59 ½ will fall under the early distributions category. The federal government and some states usually impose a 10% federal tax on these transactions to discourage the misuse of retirement funds. However, there are some exceptions to this rule, such as death, disability, or an IRS levy. 

Termination/Hardship Distribution

Termination/hardship distributions are withdrawals taken from an individual’s elective deferral account to finance an immediate need. The government will impose a tax on you for using this fund.
Typically, you report these retirement plan transactions to the IRS through Form 1099-R, where you indicate the taxable amount in Box 2a. If your distribution includes both Roth and non-Roth money, you will receive two Form 1099-Rs. 

Excess Contributions

Except for Roth transactions, the IRS will tax you on distributions on excess contributions. The agency typically charges 6% annually for such amounts. 

What Information Is on a 1099-R?

Every January, PERS sends copies of IRS Form 1099-Rs to retirees who received benefits from the previous calendar year. If you find one on your doorstep, there’s no need to panic. Below is a list of the important sections you will find in the document. 

  • Box 1, Gross distribution: This portion pertains to the total amount PERS paid for the previous calendar year, including the Cost-of-Living-Adjustment (COLA) check, if applicable. 

  • Box 2a, Taxable amount: The IRS will only charge you for the taxable portion of your income, which should be equal to or less than the value shown in Box 1. 

  • Payer’s federal identification number: When filling out this part, remember each code is specific to each PERS retirement plan. Here is a list of the nine-digit numbers the agency uses:

    • PERS: 64-6001557

    • MRS: 64-0746030

    • MHSPRS: 64-6176426

    • SLRP: 64-6190947

  • Box 4, Federal Income tax withheld: In this portion, you should disclose the total amount, including those withheld from your COLA benefits. 

  • Box 5, Employee contributions/Designated Roth contributions or insurance premiums: This part may be confusing, so read carefully. If you are a PERS retiree, note that Box 5 does not relate to Roth contributions or insurance premiums. Instead, it should reflect the difference between Box 1 and Box 2a, which represents the after-tax contributions recovered tax-free from the applicable calendar year. It should not be subject to tax. 

  • Box 7, Distribution codes: Below is a list of applicable numbers used to identify the type of retiree benefit paid for by PERS.

    • Code 2: Early distribution without the 10% penalty

    • Code 3: Disability retirement benefits released to a retiree aged below 59 ½ 

    • Code 4: Death

    • Code 7: Normal distribution for a retiree aged at least 59 ½ years old by the end of the previous calendar year

  • Account number: This box contains information on the amount withheld for payment for group health insurance premiums (HLTH). Use this amount when itemizing deductions instead of the figure in Box 5. 

What Should I Do With a Form 1099-R?

By now, you should know the answer to the question, “what is a 1099-R?” If you get this document on your doorstep, it means you received a distribution of at least $10 from your retirement plan or you had an outstanding loan balance from your fund containing a taxable amount.
The next ideal step is to report the amounts you received to the IRS. Remember, Form 1099-R is an informational return, and it will impact your federal tax return. Some boxes are straightforward, such as the payer’s federal information number. However, for some items on the form, you should determine the taxable portion of the distribution you received from the previous calendar year. The process can be complicated, especially for finance non-experts.
When in doubt, try using tax-preparation software or consult with specialists to ensure you do not commit errors in filling out your Form 1099-R. 

Final Thoughts

This article aims to answer the question, “what is a 1099-R?” It covers why individuals get this document, what information it contains, and what a recipient should do with it.
As mentioned earlier, it’s best to ask for help if you’re unsure how to fill out this form. If you input incorrect or incomplete data, you will have to file an amended return. The consequence for non-fulfillment is worse; you will have to pay massive penalties on the tax you owe.
Should you have questions about Form 1099-R, please consult with an expert immediately. At (Company), we are here to serve your needs. Please call (number) or send an email via (email address) to request a free, no-obligation consultation.

Core Group
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