When your receive a nonperiodic distribution from a nonqualified annuity, taxable gains come out first, investment in the contract last. In this case, that means that the entire $10,000 was a distribution of taxable earnings. If you are under age 59½, the taxable amount is subject to a 10% early-distribution penalty and I would expect that box 7 of the Form 1099-R would contain codes 1 and D.
