Defined Benefit Payout 1099-NEC

As a volunteer firefighter, I was enrolled in a defined benefit capital appreciation plan. On separation from the fire company, the benefit is distributed in 3 installments. Per IRS rules, this can be rolled over into a qualified retirement account without needing to pay tax until it is withdrawn.

 

However, under new rules, the municipality is issuing this as a 1099-NEC. Entering this in TurboTax as an NEC triggers the creation of a business and there is no way not to pay taxes on the amount.

 

This seems like a bug in the software and should have an option to allow an NEC to be treated as a non-taxable  rollover and not pay taxes. Hopefully this can be fixed for 2023 tax year.