We cashed in two small Universal Life policies this year with a total combined cash value of $22,860. We are well within the 12% tax bracket. The tax on the cash out portion ($14,238) shows as $3,195. That's 22% of what is supposed to be Ordinary Income Charge (12%). Help me understand why either TT is calculating wrong or why it is to be 22%. THe Distribution Code "7" is selected on each 1099-R.
It appears that TT is double counting the amount. My return shows I owe $1,907 ($33 is penalty for underpayment). When I take out the $14,238 for the cashed in policies, it shows we are owed $1,288 (and the penalty disappeared). This is a swing of the $3,195 listed above. 12% of $14, 238 is $1,708.52.
These policies were in effect since the early 1980's.
Thanks in advance
John
