I imported my 1099Rs to the desktop version. I converted an annuity to a monthly income stream and understand this distribution code (6 - Nontaxable 1035 exhange). (The exchange happened in late 2022 but payments didn't start until Jan 2023.) The Federal return forms handle this 1099R fine.
When I get to the PA forms, under a page header "Schedules of Gains and Losses" I'm prompted for the Cost Basis for this 1099 (code 6). I assume is the value under 1099R box 5 (Employee Contributions) - which was already imported and shows in the Fed section. Why ask a again?? Are gains on the Annuity funds taxed in PA at this junction? (when exchanging to begin annuity payments?)
Below that 'cost basis' entry, there are checkbox questions, the first of which is "This sale is not taxable in PA" - not sure HOW TO ANSWER THAT! I know there is a gain from my initial investment but don't really know WHEN or IF that is taxed in PA. I'm kind of stumped here. Was hoping Turbo Tax Pennsylvania tax experts would have built in the appropriate answer - or bypass the PA capital gain Sch D all together as appropriate!
Since payments started in Jan 2023, I don't have a 1099R to see how these annuity payments are reported... I recall my financial guy mentioning what portion of each annuity payment would be taxable, so I'm assuming that I'll get a 1099R for those payments showing it as "fully taxable" (like my pension 1099Rs.) However, retirement income is not taxed in PA, so I'm assuming this annuity will not be taxed either.
Bottom line: Are the gains on my annuity ever taxable in PA? If so, when (at exchange or as payments occur?) ...things were going smoothly until that 'cost basis' question snagged me! Thanks for any help! @Code 6 @pacapital gain
Yes, you can check the box to say "This sale is not taxable in PA".
The state of Pennsylvania doesn't tax 1035 exchanges. Click here for reference.
Once your distributions start, the gains may be taxable, it depends on whether your annuity is in a retirement plan or not. Click here for more details.
Yes, you can check the box to say "This sale is not taxable in PA".
The state of Pennsylvania doesn't tax 1035 exchanges. Click here for reference.
Once your distributions start, the gains may be taxable, it depends on whether your annuity is in a retirement plan or not. Click here for more details.
Thank you - I had been on both those pages. I questioned the wording of the first reference (is this 'exchange 1 annuity contract for another'?) and literally had the 2nd reference page printed and sitting right next to me! You make a great point, I'm not sure how the fixed annuity fund was/is characterized... I created it with after-tax earnings (outside of my employer plans) at least 15 years ago. I'm guessing it will be taxable in PA (oddly, interest income if I'm reading correctly ?) and the distribution code will answer the question next year. (Of course, I'll end up needing help next year if the distribution code doesn't automatically answer the 'I'm eligible, plan's eligible' question for the PA state section of TT!)
Thanks again for the speedy reply- I realized very late last night that regardless of if I hit 'not taxable in PA' or not, my reported income was the same - the transaction flows only to a "Gross Compensation' worksheet.
When you get the 1099-R next year, it will have a different code(s). If box 7 has a code D, TurboTax will know that it is a non-qualified annuity. The gains portion of the annuity payments is reported as interest income on PA Schedule A. TurboTax will handle both the federal and PA tax return based on those codes, but you can always visit the Community if you need assistance! After-tax earnings have already been taxed, so you don't get taxed again.
1099-R Box 7 codes and their meanings
Code D - Annuity payments from nonqualified annuities and distributions from life insurance contracts