Why did my refund amount drop when I entered my 1099-R if it said I didn't owe more tax on the retirement income?

[dabdsb]

I didn't think I would owe on my retirement income, but as soon as I entered it, my refund amount changed even though it said I didn't owe additional tax....why?

[EdwardK · Accepted solution]

It depends.

You should re-confirm you entered the information in TurboTax exactly as it appears on your 1099-R and pay extra attention to the codes in Box 2b and Box 7. However, if you received the distribution and used the money on expenses, etc. and did not perform a rollover, etc. it will probably be taxable.

While the Form 1099-R may seem related to the refund decrease it may not be the actual cause. In order to fully understand your tax returns, you should switch to Forms Mode (since you appear to be using TurboTax CD/Download) and review Form 1040. The amounts on Form 1099-R are usually populated on Form 1040 Lines 15a, 15b, 16a, 16b, and 64. You could print a copy of Form 1040 before entering Form 1099-R and then print another copy after entering Form 1099-R and compare to determine which amount(s) is causing the refund decrease.

Please review the following TurboTax FAQs for more information:

• What is Form 1099-R?
• When to Use Tax Form 1099-R Distributions From Pensions, Annuities, Retirement, etc.
• Where do I enter my 1099-R?
• What do all the codes in Box 7 of the 1099-R mean?
• Is my distribution nontaxable if Box 2a on my 1099-R is "0" or blank?

[dmertz]

TurboTax was telling you that you do not owe an early-distribution penalty on the distribution, not that you had sufficient tax withholding on the distribution to cover the added tax liability resulting from the distribution.  The fact that your refund went down when you entered the Form 1099-R simply means that your tax withholding on the distribution was insufficient.

[Greg17949]

Thank you for this response.  I had the same situation as the original poster.  This made me understand it better.  After entering my W-2 I was showing, for example, a return of $3000.  Then I entered my 1099-R, which I had chosen to pay as much tax as possible when I did the early withdrawal.  This reduced my refund, for example, by $1000.  Then turbotax says they will check to see if my situation would qualify for an exemption to the tax penalty for early withdrawal.  If you end up qualifying to be exempt from the penalty, turbotax will say congratulations you are exempt and you refund will increase but only so much.  For example from $2,000 back to 2,500.  This is somewhat deceiving since it tells you that you are exempt and your refund doesn't return to its original total before your 1099-R was entered.  But after reading your answer I realize that the reason my refund didn't return to the same amount was because I still owe tax on my withdrawal amount.  Unlike my W-2 where i am entitled to a refund because I over paid in income tax.  Thanks again.