Retirement Income – Form 1040 - AARP Tax-Aide

Transcription

Retirement Income – Form 1040
Retirement Income
Where
Reported
Source Document
(A)
IRA (Individual Retirement
Arrangement) Distributions
Form 1040
Line 15
• Form 1099-R with “IRA / SEP / SIMPLE” Box
checked
(B)
Pensions, Annuities,
Retirement or Profit Sharing
Plans, Insurance Contracts
Form 1040
Line 16
• Form 1099-R without “IRA / SEP / SIMPLE” Box
checked
• Form RRB 1099-R green (Railroad retirement
Board pension or annuity)
• Form CSA 1099-R (Federal Civil Service
Administration annuity)
• Form CSF 1099-R (Survivor Annuity)
(C)
Social Security, Railroad SS
Equivalent Benefit
Form 1040
Line 20
• Form SSA-1099
• Form RRB-1099 blue (SS Equivalent Benefit
portion of Railroad Tier 1)
Webster, NY – TaxHelper 2015
-1-
Retirement Income – Form 1040
(A)
(B)
(C)
-2-
(A) IRA Distributions – Form 1099-R
IRA Box checked
x
-3-
(A) IRA Distributions
• Types of Individual Retirement Arrangements (IRA)

Traditional
 Distributions may be either fully or partially taxable
 If non-deductible contributions have not been made to any IRA then
distributions are fully taxable
 Otherwise, a portion of each distribution is tax-free and Form 8606 is
required. Part I of Form 8606 (“Nondeductible Contributions to
Traditional IRAs”) is in scope if taxpayer can provide prior year
information needed on 8606


Roth
 Distributions are tax-free if they are “qualified”. If not fully tax-free –
out-of-scope
Savings Incentive Match Plan for Employees (SIMPLE) and Simplified
Employee Pension plan (SEP)
 Distributions are generally fully taxable. If not fully taxable - out-of-scope
-4-
(A) IRA Distributions
• Taxpayer responsible to take RMD starting age 70½, but may defer
first year’s RMD until April 1 of the year following


Can avoid two distributions taxed in one year by taking first in year turn 70½
IRA Administrator will calculate RMD amount.
• If taxpayer is 70½ or older, confirm with taxpayer that total RMD
was taken


50% additional tax for amount not distributed (“too late” penalty)
Can request waiver of additional tax using Form 5329 Part VIII
-5-
(A) IRA Distributions – Form 8606 Part I
• If any prior year contributions to the IRA were made with non deductible
funds, then the IRA has a non-zero basis
• Distributions from an IRA with a non-zero basis require calculation of the
taxable portion on Form 8606 Part I
• On the 1099-R Exclusion Worksheet check the box under line 5. This causes
form 8606 to appear in forms tree
-6-
(A) IRA Distributions – Form 8606 Part I
• Form 8606 Line 1: TWO transfers the nondeductible portion of any IRA
contribution made to a traditional IRA this year from the IRA Worksheet Line 12
2015
2016
2015
April 18, 2016
• Form 8606 Line 2: enter carry forward cost basis from prior years (from prior
year form 8606 line 14, if not carried forward in TWO)
• Taxpayer must provide value of all Traditional IRA accounts as of the end of the
taxable year.
2015
• TWO transfers taxable portion of IRA distribution to 1040 line 15b
-7-
(A) IRA Rollovers – 1 of 2
• A direct rollover between two qualified plans is not taxable. This is indicated by
a distribution code of “G” in 1099R Box 7.
• If Box 7 has a distribution code 1, but money has been rolled back in a timely
matter, then enter the amount rolled back in line 1 of the Exclusion Worksheet.
• The portion of a distribution received by the taxpayer and rolled over to a
qualified plan within 60 days is not taxable. Enter the rollover amount on Line 1
of the Exclusion Worksheet.
-8-
(A) IRA Rollovers – 2 of 2
• In either case, link from 1040 Line 15b checkbox to an IRA Rollover Explanation
form and provide the IRS with information about the rollover
• Two examples of a rollover explanation


Direct transfer between institutions
Partial rollover by TP
-9-
(A) IRA Early Withdrawal Penalties
• 10% penalty for distributions taken before age 59½. Identified by a code
“1” in Box 7.
• If taxpayer has arranged for a series of equal periodic payments, Box 7
will contain the code “2” and the penalty is not assessed
• If another exception to the penalty applies, complete Part I of Form 5329


Fill in the Exception Code and the Exception Amount on Line 2
See Pub 4012, page H-2 for a list of exception codes (also on next slide)
-10-
(A) IRA Early Withdrawal Penalties
Exceptions - Form 5329
No. Exception
01 Qualified retirement plan distributions (does not apply to IRAs) if you separated from service in
or after the year you reach age 55 (age 50 for qualified public safety employees).
02 Distributions made as part of a series of substantially equal periodic payments (made at least
annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and
your designated beneficiary (if from an employer plan, payments must begin after separation
from service).
03 Distributions due to total and permanent disability.
04 Distributions due to death (does not apply to modified endowment contracts).
05 Qualified retirement plan distributions up to (1) the amount you paid for unreimbursed medical
expenses during the year minus (2) 10% (or 7.5% if you or your spouse are age 65 or older) of
your adjusted gross income for the year.
06 Qualified retirement plan distributions made to an alternate payee under a qualified domestic
relations order (does not apply to IRAs).
07 IRA distributions made to unemployed individuals for health insurance premiums.
08 IRA distributions made for higher education expenses.
09 IRA distributions made for purchase of a first home, up to $10,000.
10 Distributions due to an IRS levy on the qualified retirement plan.
11 Qualified distributions to reservists while serving on active duty for at least 180 days.
12 Other (see Other, below). Also, enter this code if more than one exception applies. *
The more common exceptions
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(A) Roth IRA Distributions
• A qualified distribution is made:


After the 5-year period beginning with the first tax year for which a
contribution or conversion is made, and
After the TP reaches age 59½, is disabled, or is the beneficiary of a
deceased TP or if used to pay up to $10,000 of certain qualified
homebuyer amounts
• Distribution code “Q” or “6” in Box 7 indicates the payer has
determined that the distribution is “qualified” and tax-free.
• Many payers use code “J” or “T.” In this case, if the taxpayer
meets the rules for a qualified distribution, use the exclusion
worksheet Line 5.
• If taxpayer does not meet rules for a qualified Roth distribution
Form 8606 Part III may be required. Refer the taxpayer to a paid
preparer – out-of-scope.
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(B) Pensions & Annuities – Form 1099-R
IRA Box not checked
Input data directly into TWO Form 1099-R
-13-
(B) Pensions & Annuities – Form RRB-1099-R (green)
RRB-1099-R issued for Railroad Retirees
2015
1,089.16
1,089.16
Out of scope
-0-0354.00
The amounts to transfer to TaxWise 1099-R are highlighted
-14-
Not checked
checked
The amounts to transfer from RRB-1099-R are highlighted
-15-
RRB-1099-R issued for Railroad Retirees
Form RRB-1099-R
TaxWise Form 1099-R
Box 3 – Employee Contributions
Box 9b – Total employee contributions
Ignore boxes 4, 5 and 6
Box 7 – Total Gross Paid
Box 1 - Gross
Box 8 – Repayments
If not blank, out of scope
Box 9 – Federal Income Tax Withheld
Box 4 – Federal tax withheld
Ignore boxes 10 and 11
Box 12 – Medicare Premium Total
Transfer to TW Schedule A – Detail Wksht
Box 7 Code: Enter a 7
NYS checkboxes: check Railroad box
-16-
(B) Pensions & Annuities – Form CSA-1099-R
CSA-1099-R issued for Civil Service / Federal Retirees
20XX
The amounts to transfer to TaxWise 1099-R are highlighted
-17-
Box 2 checked
The amounts to be transferred from CSA-1099-R are highlighted
-18-
CSA-1099-R issued for Civil Service / Federal Retirees
CSA-1099-R
TaxWise 1099
Box 1 - Gross distribution
Box 1 – Gross
Box 2a - Taxable amount
If “UNKNOWN” -------------------------->
Box 2 – Taxable amount
“X” in Taxable amount not determined
Box 4 – Federal income tax withheld
Box 4 – Federal tax withheld
Box 5 – Employee Contributions, Designated
Roth Contributions or Insurance Premiums
Box 5 – Employee Contributions, Designated
Roth Contributions or Insurance Premiums
Box 7 – Distribution Code
Box 7 – Distribution Code
Box 10 – State income tax withheld
Box 10 – State tax withheld
NYS checkboxes: check Box 2
-19-
(B) Pensions & Annuities – Tax Liability
• If the taxpayer did not contribute to the plan, or if the taxpayer’s
contributions were all before-tax, then all distributions are fully
taxable
• If the taxpayer made after-tax contributions to the plan, then the
return of those contributions is tax-free
-20-
(B) Flowchart I: Pensions & Annuities – Determining Federal Taxable Amount
After transferring data from 1099-R / RRB-1099-R / CSA-1099-R to TWO 1099-R,
use this flow chart to determine federal taxable amount
Taxable
Amount
Box 2a
Blank or 0?
No
Box 2a Amount is taxable
Finished
Yes
If box 5 represents
employee contributions or
Box 5
other nontaxable amountlank, 0 or
Box
5
attributed
(e.g., health insurance
Blank
or 0?
to
insurance
premiums) included in
premiums?
current distribution, then
answer “no”
No
Copy Box 5 to
Exclusion Worksheet
Line 5
Yes
Total Employee
Contributions
Box 9b
Blank or 0?
Yes
No
Copy Box 9b to
Simplified Method
Worksheet Line 1
Complete Simplified Method Worksheet
using data calculated by the online
Annuity/Pension Exclusion Calculator*
If no current year exclusion is available,
then set Line 5 = Line 1
*https://cotaxaide.org/tools/Annuity Calculator.html
Box 1 Amount is taxable
• For IRAs with a basis calculated on Form 8606, do not used this flowchart, but be sure to check the first box in the
exclusion worksheet under Line 5, specifying that taxpayer has “ever made nondeductible IRA contributions”
• Do not use this flowchart for rollovers (e.g., 1099-R box 7 codes G, 6, or H) or for disability income (code 3) when
taxpayer is below his company’s retirement age
-21-
(B) Pensions & Annuities – Exclusion Worksheet
Use if Box 2a is blank or 0 and Box 5 represents employee contributions or other
nontaxable amount (e.g., health insurance premiums) included in current distribution
Check this box if taxpayer’s
IRAs have a non-zero basis
calculated on Form 8606
-22-
(B) Pensions & Annuities – Simplified Method
Use if Box 2a blank or 0 and Total Employee Contributions (Box 9b) are known
• Information required:






Cost in the plan (from Line 9b or other taxpayer documentation)
Annuity start date (calculate age at start date)
Single life or joint annuity (use correct age checkboxes)
Number of payments received in current tax year
Cost recovered tax-free in prior years (can be carried forward or calculated*)
Assure that total cost recover has not occurred.
If taxpayer dies while still employed and spouse survives and draws survivor
benefits – Must use only date of birth of spouse and date when spouse started
receiving benefit for simplified method
• Fill in amounts and checkboxes and TWO will calculate the exclusion amount

After the first year, it is always the same amount, until total cost recovery occurs
* Cost recovered = number of prior months that annuity has been received through the end of
the preceding year times the exclusion per month on line 3.
-23-
(B) Pensions & Annuities – Simplified Method
Filling line #2
check-boxes
in sequence
will yield
correct
answer
-24-
(B) Pensions & Annuities – Special Cases
• Special Case 1: Box 1 has a gross distribution amount and Box 2a taxable amount is
“0” and “Taxable amount not determined” box not checked (i.e., taxable amount is
determined)

Enter box 1 amount in line 5 of exclusion worksheet in order to zero out taxable amount
• Special Case 2: For 1099-R box 7 code 3 (disability) when the taxpayer is below his
company’s retirement age

Check the disability box on the form 1099-R, and then the distributions are considered as
wages.
Form 1099-R
-25-
(B) Pensions & Annuities – Special Cases
• Special Case 3: Total distribution specified and box 5 is larger than box 1

Confirm that taxpayer cashed out an annuity or terminated plan…if so, then

Enter box 1 amount into line 5 of exclusion worksheet to zero out taxable amount


If due to death of annuitant, Link from Sch A, line 28 (not subject to 2% floor) to
Sch A Line 28 worksheet, enter excess loss and use “Unrecovered Pension Investments”
in description
If not due to death of annuitant, Link from Sch A, line 23 (subject to 2% floor) to
Sch A Line 28 worksheet, enter excess loss and use “Loss on Annuity” in description
-26-
(A & B) Form 1099-R, Box 7 – Common Distribution Codes
1 – Early distribution (10% penalty)
2 – Early distribution, exception applies (no penalty – e.g., a Roth conversion
before 59½, part of a series of equal periodic payments)
3 – Disability pension.

If the TP has not reached the minimum
retirement age set by his company,
check the related box under Box 7.
The income will then be reported on
1040 Line 7 instead of Line 16. Eligible for EIC
4 – Payment to a decedent’s beneficiary
6 – Tax-free exchange of life insurance or annuity
7 – Normal distribution (most common)
A – Lump sum distribution; may qualify for averaging – out-of-scope
G – Direct rollover – tax-free
Q – Qualified distribution from Roth IRA
-27-
(A & B) Taxwise 1099-R – NY State Check Boxes
• Box 1: Check box if taxpayer was over 59½ during the entire tax year and
qualifying pension or annuity is not from the government or railroad


If (1) taxpayer turned 59½ during the tax year, (2) the taxable amount is reduced on
Form 8606, and/or (3) distribution is a death benefit (box 7 code 4), then manual
adjustments may be needed to the NY pension exclusion on NY IT-201 line 29
(Use flowcharts on following pages).
A code D in 1099-R Box 7 Indicates that annuity payments are non-qualified
distributions from life insurance contracts. No boxes should be checked, and there is
no NY exclusion
• Box 2: Check box if pension or annuity is from a federal, NY State or NY local
government plan, NYS Teachers Retirement System, . . .
• Box 3: Not used
• Railroad retirement: check box if from Form RRB-1099-R (green)
-28-
NY IRA and Pension Exclusion Flowcharts
• Flowcharts on the following 3 pages explain how to calculate and enter taxpayer data
for the NY IRA and pension exclusion. These flowchart are particularly useful in
handling 3 situations not treated automatically by Taxwise



Taxpayer turns 59½ during the tax year
Taxable amount of IRA distributions are calculated on Form 8606, because there is a
non-zero IRA basis
Distribution is a death benefit (1099R, box 7, code 4)
• All adjustment entries to Form IT-201 line 29 are done separately for taxpayer and
spouse and are entered in the IT-201 fields as shown here:
• For multiple
adjustment entries it
is necessary to
manually enter the
sum, since no
scratchpad is
available for these
fields.
Line 29
adjustment
entries
taxpayer
spouse
-29-
Flowchart II: Determining NY Exclusion for 1099-R Distributions from IRAs, Pensions or Annuities
Use with Form 1099-R box 7 codes of 1,2,7 or any other codes that result in federally taxable income
Use Flowchart III if IRA accounts have a non-zero basis calculated on Form 8606; Use Flowchart IV for box 7 code 4
Entire Federal Taxable
portion of distribution
qualifies for NY exclusion
yes
Is distribution from a NY or Federal Pension or Annuity?
Action:
• Check NY Box 2
no
yes
Is distribution from an IRA or qualified employment related pension or annuity?
Answer “no” if 1099-R box 7 contains a code “D”
Was the taxpayer over age 59½ all year?
yes
NOTE:
Follow flowchart separately for taxpayer
and spouse. $20K limitation applies
separately to taxpayer and spouse.
Maximum exclusion for MFJ is $40K
Taxpayer was over
59½ all year
no
Was the taxpayer under age
59½ all year?
no
yes
Taxpayer was under
59½ all year
Taxpayer turned 59½
during the year
no
No exclusion is allowed
Action:
• Do not check any of the NY
checkboxes
none
What portion of the distribution was made after the taxpayer was 59½?
all
NY Exclusion is the Federal taxable
amount of the distribution taken
after taxpayer was 59½, subject to
a $20K limitation
Action:
• Check NY Box 1
part
NY exclusion is the Federal taxable portion of the distribution taken after taxpayer was 59½, subject to
a $20K limitation
Actions:
• Check NY Box 1
• Make an adjustment entry to IT-201 line 29 with the Federal taxable portion of the distribution taken
before taxpayer was 59½. Calculate the adjustment entry as follows:
Distributions received before taxpayer was 59½
X Federal taxable amount
Total distributions received
(1099R: Box 2 or Box 1 minus exclusion)
Flowchart III: Determining NY Exclusion for 1099-R Distributions from IRAs when the
Taxpayer’s IRA accounts have a non-zero basis calculated on Form 8606
Is distribution from an IRA, and the taxpayer’s IRA has a nonzero basis calculated on form 8606?
no
IRA accounts
have a basis=0
Use Flowchart II
accounts have
yes IRA
a non-zero basis
NOTE:
Follow flowchart separately for taxpayer
and spouse. $20K limitation applies
separately to taxpayer and spouse.
Maximum exclusion for MFJ is $40K
Action:
• Check the first box under line 5 of the Exclusion Worksheet on every 1099R
from taxpayer’s IRAs, so that all IRA distributions are included on Form 8606
Was the taxpayer over age 59½ all year?
yes Taxpayer was over
59½ all year
no
Was the taxpayer under age
59½ all year?
yes
Taxpayer was under
59½ all year
Action:
• Do not check any of the NY
checkboxes
no Taxpayer turned 59½
during the year
A taxpayer’s NY Exclusion for all of his IRAs is
the Federal taxable amount from 8606 line 15,
subject to a $20K limitation
A taxpayer’s NY Exclusion for all of his IRAs is a Prorated IRA Exclusion, defined as the part of
the Federal taxable amount (Form 8606 line 15) that was distributed after taxpayer was
59½, subject to a $20K limitation
Actions:
• Check NY Box 1 on all 1099Rs from
taxpayer’s IRAs
• After completing all of taxpayer’s IRA
1099Rs make an adjustment entry to IT-201
line 29 with the Federal non taxable portion
of the IRA distributions from
Form 8606 line 13.
Actions:
• Check NY Box 1 on all 1099Rs from taxpayer’s IRAs
• After completing all of taxpayer’s IRA 1099Rs make an adjustment entry to IT-201 line 29
Check this box if
with the sum of:
taxpayer’s IRAs have a
1) The Federal non taxable portion of the IRA distributions from Form 8606 line 13 and
basis
2) The taxable portion of distributions taken beforenon-zero
the taxpayer
was calculated
59½ calculated as
on
Form
8606
follows
Total of all IRA distributions received
before taxpayer was 59½
X Federal taxable amount (Form 8606 line 15)
Total of all IRA distributions (Form 8606 line 7 + line 8)
Entire distribution
qualifies for NY exclusion
Action:
• Check NY Box 2
Flowchart IV: Determining NY Exclusion for 1099-R Box 7 Code 4 -- Death Benefit
yes
Is distribution from a NY or Federal Pension or Annuity?
no
Be sure to check the
appropriate boxes on
NY IT-201 lines 9 and 10 for
distributions received as a
beneficiary
Is distribution from an IRA or qualified employment related pension
or annuity? Answer “no” if 1099-R box 7 contains a code “D”
yes Qualified
Were any distributions made when the
decedent, if alive, would be at least age 59½?
All distributions were
made after decedent
would be ≥59½
The taxpayer’s NY
exclusion is the
Federal taxable
amount of the
distribution, but
limited to $20K
Actions:
• Check NY Box 1
no
no
Not
qualified
Action:
• Do not check any of the
NY checkboxes
Decedent < 59½
yes
Were all distributions made after the
decedent, if alive, would be over age 59½?
yes
no
NOTE: Follow flowchart separately for
taxpayer and spouse. $20K limitation
applies separately to taxpayer and spouse.
yes
Is the taxpayer the
only beneficiary of
the distribution?
At least some distributions made
when decedent would be <59½
NY exclusion is the Federal taxable portion of the
distribution taken after decedent would be 59½,
subject to a $20K limitation
Actions:
• Check NY Box 1
• Make an adjustment entry to IT-201 line 29 with
the Federal taxable portion of the distribution
taken before decedent would be (if still alive)
59½. Calculate the adjustment entry as follows:
Distributions received before
decedent would be 59½ X
Federal taxable amount†
Total distribution received
† Federal taxable amount
no
The NY Allowed Exclusion* is the Federal taxable
amount of the distribution made to the taxpayer after
the decedent would be 59½, were he still alive, but
limited to a Maximum Allowed Exclusion**
Actions:
• Do not check any NY boxes
• Enter the Allowed Exclusion* or the Maximum
Allowed Exclusion**, whichever is smaller, as a
negative number on the IT‐201 line 29 adjustment
line
* Allowed
Exclusion =
Distributions received when
decedent would be ≥59½
Total distribution received
** Maximum Allowed
=
Exclusion
= 1099R: Box 2 or Box 1 minus exclusion
X
Federal
taxable
amount†
value of pension
inherited by Taxpayer
X $20K
Total value of pension
inherited by all beneficiaries
(C) Social Security Benefit Statement
Form SSA-1099
None
None
Lump sum
payments
-33-
(C) Social Security Benefit Statement
• If Client is missing SSA-1099


Contact local SSA office – may provide info over the phone
Use SSA-4926 for 2014 (statement of benefits to be paid) and calculate
2013 as 98.5% of monthly 2014 amount and number of months benefits
received in 2013
• Canada Pension Plan, Quebec Pension Plan and Old Age Security
from Canada and Germany



By treaty are added to/treated like U.S. Social Security (Pub 915)
Taxpayer must have converted amount into US dollars (bank statement
shows)
Other countries and pensions from all countries (other than above) outof-scope
-34-
(C) Railroad Retirement Board SS Equivalent Benefit
Form RRB-1099
-35-
(C) SS & RR Tier 1 Benefits – Taxwise 1040 Worksheet 1
• Link from TW 1040 Line 20 to 1040 Worksheet 1
• Transfer data to worksheet as follows:
Form SSA-1099
TW 1040 Worksheet 1
Box 5 – Net Benefits
Social Security received this year
Box 6 – Voluntary Federal Income Tax WH
Federal tax withheld
Description of Amount in Box 3
Sum any Medicare premiums
Medicare to Schedule A
Form RRB-1099
TW 1040 Worksheet 1
Box 5 – Net SS Equivalent Benefit ...
Railroad Tier 1 received this year
Box 10 –Federal Income Tax Withheld
Federal tax withheld
Box 11 - Medicare Premium Total
Medicare to Schedule A
-36-
(C) SS & RR Tier 1 Benefits – Lump Sum Payments
• Any lump sum payment for prior years is included in the taxable amount:

Specified in SSA-1099 Description for Box 3

Specified in RRB-1099 Box 9

In TWO at bottom of “1040 WK1-Social Security…”, you will see “Lump Sum Payment

Enter amount(s) for 2015, then click here and link (F9) to Lump Sum Wkt (next page)
x
• If the TP does not wish to include the lump sum payment on the current tax
return he should be referred to a paid preparer – Out-of-scope
-37-
(C) SS & RR Tier 1 Benefits – Lump Sum Payments
2013
2013
-38-

Retirement Income – Form 1040 - AARP Tax-Aide

Transcription

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