Is there an error in TurboTax when calculating taxable income from a covid-19 retirement distribution?

[icky0]

Update: I'm still waiting to hear back from my plan administrator about why they left box 2a blank on my 1099-R, but I think this is still a TurboTax error. If you think about it, they really can say they can't determine the taxable amount as we can repay any part of the distribution after the 1099-R is created. In my case, reporting $30,000 as taxable income would be wrong. TurboTax should be able to handle a Covid distribution with a blank 2a.

And by the way, my box 5 is blank and this was not a periodic distribution.

[macuser_22]

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@icky0 wrote:

Update: I'm still waiting to hear back from my plan administrator about why they left box 2a blank on my 1099-R, but I think this is still a TurboTax error. If you think about it, they really can say they can't determine the taxable amount as we can repay any part of the distribution after the 1099-R is created. In my case, reporting $30,000 as taxable income would be wrong. TurboTax should be able to handle a Covid distribution with a blank 2a.

And by the way, my box 5 is blank and this was not a periodic distribution.

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The 8915-E line 7 instructions say:

[quote]

Line 7. Enter on line 7 your cost, if any. Your cost is generally your net investment in the plan. It does not include pre-tax contributions. If there is an amount in Form 1099-R, box 2a (taxable amount), the difference between Form 1099-R, box 1 and box 2a, is usually your cost. Enter the difference on line 7.If there is no amount in Form 1099-R, box 2a, and the first box in box 2b is checked, the issuer of Form 1099-R may not have had all the facts needed to figure the taxable amount. You may want to get Pub. 575, Pension and Annuity Income, to help figure your taxable amount.

[end quote]

"Your cost" is the box 1 amount minus any after-tax contributions you made to the 401(k) that should be on the 1099-R in box 5.

For a 401(k) there is no excuse for the employers plan administrator NOT to have all of the necessary information to determine the correct 1099-R box 2a amount.   They are the ones that administrate the account and keep the records.

If the plan administrator refuses to issue a corrected 1099-R and you know the amount of after tax contributions you have made (it should be on your account statements), then you can prepare a "substitute" 1099-R in TurboTax exactally like the original but enter the amount of after-tax contributions (or 0 if none) into box 2a.

TurboTax will ask for a explanation of why you are filing a substitute and the steps you took with the plan administrator to get it corrected.

Without box 2a the entire box 1 amount is applied making the entire box 1 amount taxable in 2020.

"TurboTax should be able to handle a Covid distribution with a blank 2a."  It does - it makes it all taxable.  Just as it would if not COVID related.  The 8915-E requires yiur cost amount on line 7 and that comes from box 2a.

[icky0 · Accepted solution]

This IS an error in how TurboTax calculates form 8915-e. If you read the instructions for that form carefully, they state that you are to use the amount in box 1 of the 1099-R. They explicitly say box 1 in the instructions. TurboTax can't handle an empty box 2, but they should be able to.

Update: I just loaded TurboTax again and they have fixed the error. Now if you have a blank box 2a on your 1099-R the system correctly calculates your distribution from the data in box 1.

[macuser_22]

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@icky0 wrote:

This IS an error in how TurboTax calculates form 8915-e. If you read the instructions for that form carefully, they state that you are to use the amount in box 1 of the 1099-R. They explicitly say box 1 in the instructions. TurboTax can't handle an empty box 2, but they should be able to.

Update: I just loaded TurboTax again and they have fixed the error. Now if you have a blank box 2a on your 1099-R the system correctly calculates your distribution from the data in box 1.

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The instructions say: " box 2b is checked, the issuer of Form 1099-R may not have had all the facts needed to figure the taxable amount. You may want to get Pub. 575, Pension and Annuity Income, to help figure your taxable amount."

If box 2b is checked (it should NOT be for a 401(k)) then the 8915-E instructions sat that *you* must determine the taxable amount.    While it does not explicitly state that *you* must enter that into box 2a - bo0x 2a is were the taxable amount goes.

A blank box 2a and 2b checked WILL make all of box 2 taxable and it has done so for years - that is not new due to the 8915-E form - that is how the 1099-R works.   A blank box 2a is not acceptable and the issuer of the 1099-R is responsible for putting the correct amount into box 2a. 

ALL 401(k) distributions MUST report the cost basis in the 1099-R form - either a zero cost basis in which case box 2a and box 1 will be the same, or in box 5 and box 2a will be the box 1 amount minus box 5.

It is very rare for an employer plan to not know the correct basis, but if they actually do not know and the plan refuses to issue a correct 1099-R then you can file a substitute 1099-R with the correct amount in box 5 and 2a (all else the same as origonal).  Then  enter into the required explanation (that TurboTax will ask for) the steps you took to get the plan administrator to correct the 1099-R and they refused to do so.

[macuser_22]

@icky0 BTW - The 2019 8915-D for 2019 disasters handled a blank box 2a the exact same way.      2a must be zero or have a value.

[icky0]

@macuser_22 

I don't understand why you are being so adamant. Turbotax released a bug fix in the last 24 hours that can handle my 1099-R the way it is. I don't need a corrected 1099-R, the error was within Turbotax and they've fixed it.

[macuser_22]

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@icky0 wrote:

@macuser_22 

I don't understand why you are being so adamant. Turbotax released a bug fix in the last 24 hours that can handle my 1099-R the way it is. I don't need a corrected 1099-R, the error was within Turbotax and they've fixed it.

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So it did.   It is strange that 2019 still handles it the same way as you first reported.  I do not recall this being an issue in 2019 with the 8915-D form.