Can I subtract the full amount in box 9b on 1099-R from the amount in box 1 to determine the taxable amount for my government survivor annuity which started prior to 1987

[opal-92]

The annuity payments  passed to me in 2005 and I have never applied the amount in Box 9b on prior tax filings.

[dmertz]

No.  Box 9b is informational only and represents the amount of investment in the contract that remained to be distributed tax free as of the beginning of the year.  However, the investment in the contract is parceled out year by year, so only a portion of the box 9b amount would apply to the current year.  Box 2a should show the taxable amount and box 5 should show the nontaxable amount of the total in box 1.

[opal-92]

Here's more information.   The annuity is a civil service survivor annuity.  The annuity started prior to 1987 with my husband.  I am now the survivor and started receiving annuity payments in 2005.      Box 9b has the same amount ($14093) on my 1099-R form for past 15 years.  Box 2a always has "unknown" entered on it.  I have never applied the amount in Box 9b on any of my tax filings.   I don't believe my husband ever used annuity parcel rules to determine how much he could apply box 9b to adjust his taxable amount.   I do not have his tax records.   I read IRS Publication 721 but it only states the annuity rules were much different prior to 1987.  My question is:  How do I apply the amount in box 9b so that I can reduce the taxable amount of the distribution given that the amount in box 9b has never been applied?   

Thanks for your help! 

[dmertz]

If the annuity starting date was before July 2, 1986, it appears that you must use the General Rule to calculate the taxable and nontaxable amounts (unless your husband used the Three-Year Rule and all of the investment in the contract was recovered years ago, making distributions now fully taxable).  See IRS Pub 939 regarding using the General Rule to calculate the taxable amount.  When you indicate to TurboTax that you receive regular (periodic) payments, TurboTax will give you the opportunity to select the General Rule and to enter the taxable amount that you calculate by following the instructions in IRS Pub 939.

https://www.irs.gov/pub/irs-pdf/p939.pdf

[opal-92]

Thanks for the update.  It looks like I need to determine how my husband applied the  cost basis of his annuity or if he never applied the cost basis to reduce his taxable amount.   

I read publication 939.   It states  "For Civil service retirement benefits. If you are retired from the federal government (regular, phased, or disability retirement) or are the survivor or beneficiary of a
federal employee or retiree who died, see Pub. 721, Tax Guide to U.S. Civil Service Retirement Benefits."

I read Pub 721.  It states "If your annuity starting date is before July 2, 1986, either the 3-Year Rule or the General Rule (both discussed later) applies to your annuity."

Pub 721 also states:  "Exclusion not limited to net cost. If your annuity starting date was before 1987, you could continue to take your monthly exclusion for as long as you receive your annuity. If you choose a joint and survivor annuity, your survivor continues to take the survivor's exclusion figured as of the annuity starting date. The total exclusion may be more than your investment in the contract."

My question is:   If my husband never established a monthly exclusion, can I use the general accounting rules and start taking a monthly exclusion for 2019 and future filings?

Thanks again for your help!

[dmertz]

My best guess is that, if your husband didn't use the 3-year rule, because the exclusion is not limited to net cost I think you should be able to calculate what the monthly exclusion should have been all along and apply that now and going forward, as well as going back three years by amending 2016, 2017 and 2018 tax returns.  I don't see how it would be permissible to calculate a different monthly exclusion based on the fact that it has not been used in earlier years; in general, amounts not claimed that should have been claimed are simply amounts on which one has needlessly paid taxes (if the statute of limitations for amending to claim a refund has expired).

[opal-92]

Thanks very much for your help.

[landismd]

Interesting, I just retired and this is the first I'm looking at these 1099-R values.   I was expecting Turbo Tax to increase my refund amount as I entered the 9B entry.  When nothing changed with the 9B entry I looked at the OPM website and read the publication 721, then I came to this forum.

As expected the information is kind of "clear as mud".

If I interpret the previous message reply correctly, the box 9B on the 1099-R shows the total employee career contribution.  The tax free portion for the 1099-R year is then reflected in the difference between the "Box 1. Gross Distribution" and the "Box 2a. Taxable amount."

If this is read, I'd love to hear some verification on my interpretation.

Thank you for the help!

[ThomasM125]

@landismd You are correct. The amount you contributed is not taxed when distributed to you, but you need to spread that non-taxable portion over your life expectancy, so you just get a small tax-free distribution each year. The amount in box 1 of form 1099-R is your gross distribution, and the amount in box 2(a) is your taxable distribution, after the tax-free allocation for the current year is applied.

[dmertz]

Any amount shown in box 9b is informational only.  It is not used to prepare your tax return, although you might find it useful in confirming that the payer has calculated the taxable amount correctly.