Non-qualified annuity taxable income

[tdo061803]

Hi Experts,

I have a non-qualified annuity and surely paid it with after-tax money. When I receive my 1099-R, it states the entire income is taxable. Box 1 and 2a are the same amount. This would mean I am been taxed twice. How could it be? 

Thanks,

[DianeC958 · Accepted solution]

Since you have a non-qualified annuity, your taxable amount should only be the amount of growth on the account. 

The brokerage that has your account should be able to assist you with that information and why they have put the distribution amount and the taxable amount as the same amount.

@tdo061803

[singerc01]

I have a similar issue and was hoping to get some guidance here.  I contacted the annuity service company and they are telling me that I take distributions from the growth first, which is taxable, and the tax basis - the amount of after-tax dollars I put in will come out last.  I was not 100% that was correct, so I went ahead and used the simplified method to recalculate it as suggested by TurboTax, and it showed that my distribution was non-taxable.  I double checked all of my inputs.  I will need to do some research to verify which is correct.  If I find something more helpful, I will add another reply.  

[singerc01]

I was able to find a little bit more information.  The Form 1040 Instructions state the following:

"If your Form 1099-R shows a taxable amount, you can report that amount on line 5b. But you may be able to report a lower taxable amount by using the General Rule or the Simplified Method or if the exclusion for retired public safety officers, discussed next, applies."   For more details, I went to IRS Publication 939.  For my situation, I can't use the Simplified Method; TurboTax didn't ask enough question to determine that.  However, I believe I can lower the taxable amount using the General Rule which is discussed in the publication.  If I do that, I cannot rely on the Form 1099-R to show the correct taxable amount in future years.  I imagine the annuity administrators, used the method which was simplest for them, but if you don't mind reading tax publications and completing a worksheet, you might be able to lower the taxable income amount.

[mpajak276]

My current version of Turbotax 2021 is making this income taxable because it is treating a non-qualified annuity as a non-qualified plan.   I need someone to contact me about a software update, or I will be requesting a refund since I will have to manually file my parent's taxes.

[BillM223]

"because it is treating a non-qualified annuity as a non-qualified plan. " - I assume that this because you clicked on the "From a Non-Qualified Plan" button in the 1099-R interview.

On your 1099-R, is box 2a empty or is "Taxable amount not determined" not checked?

If neither are checked, then do the following.

Do not enter anything for boxes 2a or 2b.

Work through the 1099-R interview, and when you are asked if this Distribution was from a Qualified Plan, answer "from an non-qualified plan".

After that, when you complete the 1099-R interview, then the non-qualified annuity distribution should not show up on line 5b on the 1040. (i.e., the blank box 2a should carry to line 5b on the 1040).

OR

Click on the "qualified plan" button. When you are asked if you want to use the Simplified Method or the General Rule, answer General Rule. When it asks you how much of the distribution is taxable (because TurboTax expects you to do this outside of TurboTax), answer 0 (zero). Again, the distribution should not be found in line 5b on the 1040.