IRS and TX Teacher Retirement

Forum|Forum|5 years ago
October 16, 2020
2 replies
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I owed the irs $500 for a small business I run on the side. No a huge deal; $500.

then it came time for me put my texas teacher retirement system 1099 R form in the turbo tax program and I did and now i owe $5500. what gives?? It spit out to me that I don't pay any taxes on it, then I hit continue and it goes to owing $5500. It already took taxes out, but says I owe more. This is the first time this has happened to me.

Volleygal63

MWilka

Level 2

On the 1099 for your TX Teachers retirement, are the taxes withheld reflected on the 1099R? If so, make sure you entered the taxes withheld when you entered the 1099R form. If you have entered the 1099R income and the 1099R taxes withheld, and you still owe money, it is most likely correct.

To prevent this in the future, you will need to contact TX TRS and have your withholding changed on the your retirement income. Sometimes the amount withheld on retirement is not enough.

volleygal63Author

Level 2

Well TT told me the way I answered box 7 I don't have to pay any extra taxes. See pic. For grins; I completed my taxes, analyzed them and it came up with total tax $5011 then total payments/credits of $4409. Then it told me I have tax rate of 4.61% and that is up from last year of 3.06%. (is the rise in the tax rate higher this year?). thank you for taking the time to answer all my questions.

dmertz

Level 15

TurboTax always presents the pictured page in response to the Form 1099-R having code 2 in box 7. Code 2 means that the payer knew that the distribution qualified for an exception to the early-distribution penalty, the extra tax to which TurboTax's page refers, despite the fact that you were under age 59½ at the time of the distribution. This page confuses many people who are not aware that it refers only to the early-distribution penalty. It's not clear why the TurboTax editors chose to use this legalize, referring to it by its legal definition as an excise tax, rather than than using the commonly used term 'penalty.' There are many places in TurboTax where the editors have erred by oversimplifying text to make it easier to read, to the point that it obfuscates whatever they are trying to say rather than making it easier to understand.

dmertz

Level 15

What TurboTax told you is that you don't pay extra taxes, i.e., an early distribution penalty (an excise tax) on the distribution. The distribution still adds to your taxable income on which you owe ordinary income tax. The amount of taxes withheld from the distribution does not take into account the actual marginal tax rate that can only be determined by preparing your tax return, so the default withholding was not sufficient to cover your marginal tax rate for this distribution. You own the additional amount of ordinary income tax with your tax return.