1099-R Basis in Distribution

[khayes6903]

I had an Employment Agreement to receive a sum of money on a certain date.  On that date in 2019, ownership of a life insurance policy was transferred to me and I paid tax on the value at the time of the ownership change.  In 2020 I received a 1099-R for a distribution used to pay the 2020 premium.  Gross and taxable distribution are the same; code 7 was in box 7.  How do I indicate that I already paid tax on this (in 2019) and the distribution is less than my basis?

Thank you.

[DavidD66]

It sounds to me like the value upon which you paid tax, did not include the 2020 premium payment.  If this is not the case, then you should not have received a Form 1099-R for that amount, and you will have to have your former employer issue a corrected Form 1099-R.  There is no way to show that you have already paid tax on that distribution. 

[khayes6903]

FYI- in 2019 I got a W-2 from my employer that included the value of the life insurance policy. The 1099-R is from the insurance company and they have no knowledge of the Employment Agreement.  They have no way to track my basis but they do show the ownership change in 2019.  Any CPAs here?

[ToddL99]

It would appear the "life insurance policy" is using its own earnings (interest, dividends) to pay renewal premiums; when these earnings are withdrawn from the account, the distribution is taxable.

Your description of this account indicates it has some invested assets - it is not just a "life insurance policy" or "a sum of money". Without specifics on the nature of this account (investment?), it would be impossible to give you an exact answer as to why you are receiving a taxable distribution.

You still have a "basis" in the value of the account. That would be the amount included (and taxed) in your 2019 W-2. It will become a factor in calculating taxable income when you start taking distributions from the "principal" balance of the account.