1099-R code 7D -
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spend09
New Member

1099-R code 7D -

This income is taxable in Illinois as I read.  Why is the tax software not deducting it from the exclusions on the illinois tax return.  The income is included in the excluded retirement income on our return.  How do I add it back in?

13 Replies
DavidS127
Expert Alumni

1099-R code 7D -

If you believe the 1099R distribution reported as code 7D should not be subtracted from Illinois taxable income, you can find the "subtraction" section of your TurboTax state return for Illinois and delete the excluded amount or include an offsetting amount as a subtraction.

 

Code D is for "Annuity payments from nonqualified annuities and distributions from life insurance contracts" per page 17 of the IRS instructions for Form 1099 at this link.

 

See this Illinois Publication 120 Retirement Income, page 2 and 3 for a list of retirement income that is not and is taxable. 

 

 

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Roadking1635
New Member

1099-R code 7D -

The software drop-down does not offer the option to enter 7D in box 7

DaveF1006
Employee Tax Expert

1099-R code 7D -

it is because Code 7D does not exist in Box 7. Are you sure they don't mean that Code D is correct code to enter in Box 7. Code D is a valid option in 7,which is an annuity payment from a non-qualified annuity.

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MuskyMickey53
New Member

1099-R code 7D -

Issue with TurboTax Illinois Tax Return

 - 1099-R code 7D Retirement Income is not Illinois State Taxable

 - Fix is to check the IRA/SEP/Simple Box.

 - This fix will tax your annuity retirement distribution at the Federal level and not tax at the Illinois State level.

 - This has been my fix for both 2018 & 2019 tax years

macuser_22
Level 15

1099-R code 7D -


@MuskyMickey53 wrote:

Issue with TurboTax Illinois Tax Return

 - 1099-R code 7D Retirement Income is not Illinois State Taxable

 - Fix is to check the IRA/SEP/Simple Box.

 - This fix will tax your annuity retirement distribution at the Federal level and not tax at the Illinois State level.

 - This has been my fix for both 2018 & 2019 tax years


Code 7D is a non-qualified annuity and is NOT an IRA.   Checking the IRA box will cause the interview to ask different questions and place what might be an incorrect amount on the wrong line (line 4a/b instead of the proper line 4c/4d) on the 1040 form guaranteeing an IRS audit letter in about a year.  (NOTE: for 2018 all 1099-R account types went on line 4a/b, on 2019 1040 forms they are on *different* lines to make it easier for the IRS to detect improper reporting such as this).  Do not check the IRA box.   The 1099-R box 2a and the interview questions determines the taxable amount for code 4D.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
brendaraatz
Returning Member

1099-R code 7D -

It should not be marked IRA/SEP if the 1099-R box is not checked. I have a 1099-R Distribution Code 8. No IRA/SEP box is checked. This is not taxable income for Illinois. There is no section to exclude on the Illinois form. It continues to tax this income. How do you stop it from taxing on Illinois - I already pay enough to the state.

Cynthiad66
Employee Tax Expert

1099-R code 7D -

Review the state return and manually input the exclusions.  This means that you need to go through the Illinois interview to see if the other annuity payment is not taxable either.

 

At this point just go back to the state return and go through the entire interview to check for the entries described below.

In the interview, you will see a screen entitled "Social Security Income Deduction". Your Social Security amount from the federal return should already be here. If so, don't change anything.

The next screen is "Pension Distributions". Note the comment: "Illinois allows a deduction for pension distributions received from a government retirement plan (such as State Employees Retirement System, State Universities Retirement System, Teachers Retirement System, Illinois Municipal Retirement System), a qualified employee benefit plan including 401(k) and 403(b), or a state or local government deferred compensation plan (457)."

If your annuity was reported on a 1099-R as not an IRA and if you indicated in the 1099-R interview that this was a qualified plan, then the amount from your annuity will probably already be here. If so, do not change anything.

But if the amount is not there, you may want to call your annuity plan administrator to see if this plan qualifies for exclusion under Illinois law. If so, you can add it to the box in the Pension Distributions" screen.

 

Most retirement income is excluded from income tax.

You are allowed to deduct most retirement income you reported on your federal return with the exception of deferred compensation and disability payments from non-governmental plans, including non-qualified annuity distributions and third party sick pay.

 

For more details use the Link below

Illinois Retirment Not Taxable

brendaraatz
Returning Member

1099-R code 7D -

It does qualify as non taxable in Illinois but Turbo Tax is taxing this income. I think the software is wrong. How do I correct? Impossible to speak to a representative from Turbo Tax. The federal return isn't right either. Why would I get estimated tax forms when I don't owe? I still get a message I'm going to get a W-2c when the social security is correct. Something is wrong with Turbo Tax this year. 

brendaraatz
Returning Member

1099-R code 7D -

This was not helpful. I did not ask about Social Security. Turbo Tax really sucks this year. SO many things are wrong with the software. 

macuser_22
Level 15

1099-R code 7D -

@brendaraatz You tagged onto a thread that was about a 1099-R with a box 7 code "7D".    You are asking a totally different question about a state tax return with a different code.

 

You would probably get a better answer if you started your own thread with your own situation since most users that know about IL will never see your question.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
blawrie44
Level 1

1099-R code 7D -

on Illinois tax return, does TurboTax differentiate between code 7 and code 7D for annuities?

or do you have to do this manually?

blawrie44
Level 1

1099-R code 7D -

Yes the "D" in box 7 means non-qualified and is taxable by the State of Illinois.

I was wondering if the Illinois software with TurboTax recognizes this and does not remove the $ amount from the Illinois return on step 5.    (or if you must add it back manually.

blawrie44
Level 1

1099-R code 7D -

Wrong -  code 7D in box 7 means the annuity is non-qualified and is taxable by the State of Illinois.

The "D"  spells out non-qualified.

Illinois publication 120 states only "qualified" annuities are not taxable by the state.

They should qualify this and explain to taxpayers the difference between "qualified" and "non-qualified"  

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