1099R - Withdrawals from IRA showing as Income

[LancoQuestions]

1099R - Retired - age 65 - only living on IRA withdrawals. Paid Federal and State taxes that were withheld on the 1099R form. Distribution code 7. IRA/SEP/SIMPLE. Does the entire amount of distributions get listed as INCOME? That triggered needing to pay back over $6,000 in medical insurance tax credits for my wife.  I am thinking I categorized the 1099R wrong.

[Opus 17]

Yes, withdrawals from an IRA are taxable income.  If you had withholding, that goes on your account as a credit, but your income and taxes are calculated just one time a year on your tax return.  If you had too much withheld, you get a refund of the excess.  But income is income.

Having other taxable income can make your social security benefit partly taxable.  And taking more money from your IRA in one year compared to another year increases your income and might affect your eligibility for credit and other benefits.

I can't tell you exactly how your income would affect your spouse's PTC, but the whole PTC system was designed badly in the first place. 

[LancoQuestions]

Thank you! 

[LancoQuestions]

End result -- because IRA withdrawals are considered "Retirement income" I needed to pay back the $7000 that I had received as healthcare credits.  The government bases the healthcare credits on current poverty level.  Such a poor healthcare system for those of us who have worked hard all our lives.

[Opus 17]

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@LancoQuestions wrote:

End result -- because IRA withdrawals are considered "Retirement income" I needed to pay back the $7000 that I had received as healthcare credits.  The government bases the healthcare credits on current poverty level.  Such a poor healthcare system for those of us who have worked hard all our lives.

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Yes.  Unlike many tax provisions that have a gradual phase-out, the PTC is more like a cliff.  This is the bad design I referred to above.  The only way to change it would be through Congress passing a new law that modifies the Affordable Care Act or replaces it with something new.  

When you are right on the edge, you need to do some careful tax planning to avoid that cliff.  

Lastly, I will point out just in case, that if the withdrawal was made less than 60 days ago, you can return some of all of the money to the same or a different IRA -- this is called a rollover -- and I don't believe it would count as income against the PTC.  But that would only help you if you made the withdrawal in the last few days of December.