When I calculate "income and adjustments" manually, it gives me an answer that is lower by exactly the amount of difference between Box 1 (Gross Distribution) and Box 2a (Taxable Amount), so it appears the program is using the Box1 amount as the taxable amount.
Is the IRA/SEP/SIMPLE box checked?
Is the box 2b "not determined" box checked?
Is there a value in box 2a that is less then box 1 or is box 2a blank?
In response to manuser_22, the IRA/SEP/SIMPLE box is not checked. Box 2b "taxable amount not determined" is not checked. There is a value in box 2a that is less than box 1.
There is no such thing as a "non-qualified IRA annuity". Any IRA is qualified even if there is an annuity held within the IRA. A Traditional IRA will always have the IRA box checked and the same amount in both box 1 ans 2a and box 2b checked. It does not sound like this is an IRA. If held in a Roth IRA then box 7 would be a code J, T or Q.
If box 7 is a code "D" then it is a non-qualified annuity. The box 1 amount should be on line 16a and box 2a on 16b on the 1040 form (line 12a/b on 1040A). What is on your 1040?
Solved in comments.