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inherited annuity

In a previous question I made, I asked about 2 annuities totaling approx $34000 that I received in an inheritance in 2022. These annuities were from my Father's death in 2001, I believe but were held by my mother's accounts until her death in 2019 and then held by Nationwide and Merrill Lynch until 2022 where I was then made aware of them. It was my understanding that Inheritance was not taxed so I didn't report it on my Income Tax. Since I have been struggling financially since my Mother's death, I took the full disbursement and bought a car that I needed and other things like utilities bills and other bills. My income was below the VA Hospital's threshold so I received my Medical free through them but this year they found this and said I owed them money for my treatment and medicine unless I could find and refute the income. I live on SSA and had to take  part-time job to keep the bills paid plus I am having to move this year (2024) in January where the Mortgage will be at least half of my SSA check. I appear to be in trouble now with the IRS and others if the answer to my short question is true that I asked yesterday. Question Can anyone refer me to someone that can help me with this because I am not as sharp at 71 as I used to be and it may take some 1 one 1 to get this solved? I did scan into my computer most of the documents but I have to find them. Thanks for any help in this.

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3 Replies

inherited annuity

 It was my understanding that Inheritance was not taxed so I didn't report it on my Income Tax.

 

That is where you made the mistake ... not all inherited items are tax free.  Annuities are tax shelters where you DO pay the taxes on the distributions.  A 1099-R should have been issued to you that you needed to report on the income tax return.  That form shows the total distribution and the taxable portion which means not all of the distribution will be taxed.   If you did not report this 1099 and the IRS caught the error then you will need to pay up if the IRS correctly adjusted your return.  

 

Now if you need further assistance I highly recommend you seek local professional assistance where you can sit down face to face.  Using this online public internet forum may not be the best choice for your situation.

 

dmertz
Level 15

inherited annuity

As Critter-3 said, annuities often contain deferred income.  If you received distributions from these annuities in 2022 you would have received a 2022 Form 1099-R for each of these distributions showing the taxable amount as Income in Respect of a Decedent and the failure to report these on your 2022 tax return is likely the reason that the IRS is assessing taxes and interest.  You'll need to review the assessment to see if it's in agreement with the amount of taxable income shown on the Forms 1099-R and, if so, pay the tax bill.

 

If there are any penalties for underreporting the income, you might be able to request a waiver of penalties, but the interest generally cannot be waived.  You might be able to arrange a payment plan with the IRS.  As Critter-3 said, a local professional might be able to help with this, but that would likely result in a bit of additional expense.

inherited annuity

While inherited cash is not taxed in the US, an annuity is not cash, it is a financial account.  If it contains money that was not taxed previously (such as, if the owner bought it with pre-tax or tax-deductible funds, or if the owner bought it with after-tax funds but the gains have not been taxed) then the untaxed portion is taxed when the money is withdrawn, either by the original owner or by any heirs.  You should receive a 1099-R from the custodian, enter this on your tax return.  

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