1099-R

[katyo2000]

I received a 1099-R for a nonqualified annuity as a beneficiary. When I input the form, the taxable portion, and the federal income tax withheld, turbotax takes out another large sum of taxes. The combined tax already withheld, and the tax calculated by turbotax come to 40% of the taxable amount? I am supposed to be paying the same percentage of taxes as my income bracket on the annuity's taxable dollars which is closer to 32%. Would you know why this is calculating incorrectly?

[ThomasM125]

I'm not sure it is calculating incorrectly. You mention "the combined tax already withheld and the tax calculated by TurboTax comes to 40% of the taxable amount." The inference here is that you are factoring in the tax withheld to determine the marginal tax on the distribution. The tax withheld would be unrelated to the tax on the distribution.

To determine your marginal tax you would have to take your total tax as reported on line 24 of your form 1040, before you entered your Form 1099-R and then after the entry and subtract the difference. You would divide that amount by the distribution amount to determine the marginal tax rate on the distribution. You may also have to factor in the credits on lines 27 to 29.

Also, other things on the return can affect your tax when you add income. You may have credits that are sensitive to income, such as the earned income credit. Sometimes when you add income taxes are increased through the reduction of credits. Also, sometimes things that weren't taxable before you added income become taxable, as when you go over the capital gain income threshold changing qualified dividends from not taxable to taxable at 15%.

You would need to look at your Form 1040 and schedules one to three to see what changes when you add the pension distribution to fully understand why your tax is increasing and to what extent it is increasing.

To view your form 1040 and schedule 1 to 3:

1. Choose Tax Tools from your left menu bar in TurboTax Online while working in your program
2. Choose Tools
3. Choose View Tax Summary
4. See the Preview my 1040 option in the left menu bar and click on it
5. Choose the Back option in the left menu bar when you are done 
    

[VolvoGirl]

You didn't actually pay the tax.   You had taxes withheld like from your paycheck. You still have to enter the whole gross amount (before taxes were withheld) with your other income to figure out the total tax (and it may put you into a higher tax bracket) and then the withholding is subtracted from the total tax to figure your refund or tax due. The Gross amount shows up on 1040 line 4a or 5a and the taxable amount on 4b/5b. The withholding will show up on 1040 line 25b.

When you enter one taxable transaction, you can't just watch the monitor. You increased your overall adjusted gross income and with that come many other changes in your return, not just the incremental tax on the one transaction. More income can make more of any Social Security taxable and can increase or decease any credits you qualified for.

And it increased your AGI and that would decrease some deductions if you itemized on Schedule A. And by increasing your AGI it might reduce some credits you were getting like EIC. It could be the Medicare Net Investment tax.