Code W on 1099-R

Forum|Forum|7 years ago
June 6, 2019
4 replies
1 view

It says this Code W is a non-taxable distribution from a long term care policy. Box 8 is $321.00 and TurboTax says I owe $32.00 for this 1099-R. That is 10%. Is that a penalty even though it is non-taxable? I never received any money so why should I have to pay?

TurboTax Free Edition Online

Best answer by Jason-Speciner

A 1099-R that you receive with code W in Box 7 should not be included on your tax return. This 1099-R is issued for informational purposes only: showing the amount of a long term care insurance rider charge deducted from a life insurance policy cash value in Box 1, and the corresponding reduction in basis to the policy cash value in Box 8. The instructions included with this 1099-R should have clearly stated this. There is no tax or penalty due.

J

jasonlovell2467

Level 2

Jason Speciner , CFP®, EA contradicts your Turbo Tax Answer however TT does not appear to have a way to not pay this tax. John Hancock also says that this should not be taxable for Code W. How do I properly do this in Turbo Tax?

J

Jason-SpecinerAnswer

Level 2

A 1099-R that you receive with code W in Box 7 should not be included on your tax return. This 1099-R is issued for informational purposes only: showing the amount of a long term care insurance rider charge deducted from a life insurance policy cash value in Box 1, and the corresponding reduction in basis to the policy cash value in Box 8. The instructions included with this 1099-R should have clearly stated this. There is no tax or penalty due.

P

Pam18

Level 2

Agree that my 1099-R is completed correctly with Box 1 and 8 showing the amount of LTC that should be non-taxable and Box 7 contains a W. However, TurboTax is completing a Form 5329 for this amount. Net, the amount is non-taxable on Form 5329 using the Line 2 exception code of 12 but why is this form completed?

P

prettyspring

Level 4

So, my husband and I are definitely under 70 1/2 years old and therefore do not have to take Required Minimum Distributions. With our life insurance policy comes a rider for a qualified long term care contract. We get a 1099-R every year showing what is allocable to the contract. Box 1 has an amount and Box 8 has the same amount and then there is a code W in Box 7. There are no other codes and nothing else is checked off. This year for 2020 I went into TT and as I was completing the taxes, I put all the entries in the step by step instructions, as I have done in the past many times and this time a form 5329 popped up with a code 12 in it. This has never happened before, so I inspected my previous years entries against what I did this year with the 1099-R and they were all the same. I deleted out the 1099-R's and the 5329's and tried again and just as I would create the 1099-R, again the form 5329 popped up. So, again I deleted out the 1099-R and the 5329 again. The only thing in the 5329 was the amount in the 1099-R and the code 12 in it. Well, I wasn't giving up. I would rather report all information returns, because the IRS has that information. So, I went into the forms and I called up a form 1099-R instead of using the step by step instructions. I typed in the form I needed, 1099-R and opened up a new form and I put everything in the form itself. Where the Code W came up the W came up with two lines of words for one sentence, so I pressed on the second line of wording, (don't know if that did the trick or not), but it was all one sentence. It is just that on my computer it rolled into two lines. I entered everything in. I entered the amount in box 1 and box 8 and a zero for box 2a. I put the state and state ID in made sure to go over the EIN number for the payer, the name, the address and made sure the normal 1099-R box was checked off at the top. I made sure my own info populated as the recipient. I was very careful and looked constantly after every step I took to see if the form 5329 would pop up. Well it did not. No form 5329 popped up. I agree with Jason that when I look at the back of the 1099-R form for instructions regarding long term care contract charges, you do not have to enter the 1099-R form in your taxes, but I always have. The reason is you can call the IRS and you really can get 10 different answers from 10 different people who work from the IRS as they all have their own interpretations. Regardless, this is what I did. Better to be safe than sorry. However, Jason is right, it does say right on the 1099-R you do not have to enter the 1099-R form. But, if you are like me. Well go ahead and try what I did. Don't go through the steps, use the form itself. Delete out the 1099-R and the 5329 and manually enter it into the form.

Hi Pokey54,

Per your instructions “So, I went into the forms and I called up a form 1099-R instead of using the step by step instructions. I typed in the form I needed, 1099-R and opened up a new form and I put everything in the form itself. “

How do you call a NEW form? Under ‘View>Forms’ After I deleted Form 1099-R and Form 5329-S TT only displays the forms that it generate for my tax return.

Thank you!

D

DianeW777

Level 15

The amounts are to be ncluded in box 1- charges or payments for qualified long-term care insurance contracts under combined arrangements. Enter Code W in box 7. It was paid out on you behalf regardless if you received the cash. This amount is taxable and subject to the 10% penalty.

Penalty Exceptions. There are very few exceptions to the penalty on Retirement distributions. Allowable exceptions to the 10% early (before age 59-1/2) withdrawal penalty are:

1. Rollovers to another IRA (no tax due)
2. Disability
3. Medical costs exceeding 7-1/2% of AGI
4. Separation from service at age 55 or older (pensions & 401K but not IRAs)
5. Substantially equal periodic payments (SEPP)
6. Military reservist called to active duty
7. Public safety employees separated after age 50
8. IRS levy
9. Education expenses (Only IRAs; not available for withdrawals from 401k plans)
10. Court ordered spousal payments
11. First time home buyer (Only IRAs; not available for withdrawals from 401k plans)
12. Beneficiary
13. Unemployed Medical Insurance
14. Age 59-1/2

Instructions for this code: Use Code W for charges or payments for purchasing qualified long-term care insurance contracts under combined arrangements which are excludable under section 72(e)(11) against the cash value of an annuity contract or the cash surrender value of a life insurance contract.

As you can see this is not one of the exceptions to the penalty.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

D

dmertz

Level 15

A code W Form 1099-R reports amounts that are explicitly excludible from income under Section 72(e)(11) of the tax code. Since this distribution is not taxable, there is no penalty. Section 72(e)(11) of the tax code also treats the distribution from the annuity as a nontaxable distribution of basis (to the extent of the basis in the annuity).

If the code W Form 1099-R reports a taxable amount in box 2a, contact the payer to obtain a corrected Form 1099-R.

J

Jos2me

Level 2

I received this 1099-R with Code W. Your explanation is what was stated on the cover letter from Lincoln Life Insurance. My question though is, since my form shows an amount, is that something I can add to my medical expenses? If it is, it will help me pay less tax since I have some other medical expenses that I paid out if pocket. Thank you for any help.

I

Irene2805

Level 15

I think you could make a case for deducting the case of the LTC rider if the IRS ever questioned it.

Here is the background info I posted in response to your previous posting:

The IRS states that "[a] qualified long-term care insurance contract is an insurance contract that provides only coverage of qualified long-term care services." Pub. 502 - Medical and Dental Expenses

If the cost of the LTC rider is deducted from the cash value of the life insurance policy you cannot deduct the premiums as a medical expense.

If you have a whole life insurance policy, you can, however, take the position that the cost of the LTC rider is eligible for a deduction as a medical expense. This is because the LTC rider charges on whole life policies are taken before premium dollars are placed in the cash value account. The tax code is unclear regarding this position.

Life insurance premiums are not deductible, so if you decide to take a deduction, the deduction should be for only the costs of the LTC rider.

@Jos2me