Annuity Distribution Code Tax Impact

[Sinsue]

Mother in law passed away in 2023, received a 1099-R for an annuity distribution.  1099-R distribution code is 4D; Death, non qualified annuity.  The payer originally withheld 10% of the taxable amount in 2a.  Knowing that we are in the 35% bracket I fully expect to be taxed another 25% as this treated as ordinary income.  When I enter all the form info in TT and get to the Distribution code box and enter 4 and so far the impact to the refund calculator come to a total of 35% as expected.  When I input the D the total tax burden grows to almost 39% .   Not sure why inputting D changes the tax burden.

[Sinsue · Accepted solution]

Found the answer to my question.  This drove a change in the Net Investment Income Tax.   The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.