1099-R Box 14/16 from out of state.

[squidlady]

Hi, I got a small death benefit from my mom last year. I received a 1099-R which shows the gross distribution, taxable amount, Fed tax withheld, etc. The form came from NY, where she worked. I live and pay taxes in CA.

My questions: TT states: if Box 16 has the word EXEMPT in it, leave it blank here.

On my form, Box 14 (not 16) shows "EXEMPT" and Box 16 shows "NY" - so do I leave that section blank in TT (the State Info section - boxes 14 - 16)? Box 15 shows the State ID # which is not the same as the Payers TIN - do I add that in TT?

I'm guessing I just leave the entire "State Info" blank in TT but wanted to make sure, thanks.

Thank you.

[ZoltanB45]

I would be concerned that if you leave 14-16 blank, California will tax you on it and it sounds like it should be exempt from state taxes. Try leaving that section blank like you said, to see if it affects California.

You mentioned16 having NY in it. It should be the amount in dollars distributed, because 15 identifies the state. Anyways,  another option would be to enter the NY information in box 15, and leave14 and 16 blank (or zero in both boxes). The zero may cause a diagnostic.

[squidlady]

Ok, will try that and see what happens. Thank you.

[DianeW777]

Yes, leave box 6 blank, however you will need to enter the NY amount and State ID (not TIN) in the state boxes in your Form 1099-R. Also enter the distribution in box 16, if after reviewing the information it doesn't fit the criteria for tax free treatment. Depending on the type of distribution it may be considered taxable for NY. Every state has different rules about whether it will be taxable.

If it is NY source income then it will be taxable if it doesn't meet the criteria for a tax free benefit.

Information for retired persons - This reviews some of the tax free pensions in NY and then click the Nonresident link if this distribution does not qualify for tax free treatment in NY.

If you do have to pay tax on it in NY, your state of residence (CA) will give you a credit for taxes paid to another state on the same income. The credit that is allowed will be the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by your resident state

Please add any questions here if you need further assistance.

[squidlady]

Ok, thank you!

[squidlady]

Hi, I do have more questions on this. This distribution was from my late mother's retirement - she was an employee of a county in NY State. I live in California and have done for many years. This was a one-time death benefit distribution from her retirement account where I had to provide my SSN and they withheld some money for interest. In doing my taxes not I'm confused about the Lump-Sum Distribution Tax (which in plain English, applies to my situation) - do I use the Special Averaging Method or Try a Different Option? The benefit itself was about $1000, and they withheld about $90.

Again, this was a one-time, lump sum benefit and I thought it would be simple to input the 1099-R form but TT is taking me into new and scary territory here. THank you and let me know if you need more info.

(PS @DianeW777 - I think you meant "leave box 16 blank" - not "box 6" - right?

[DianeW777]

You should use that option if you are confident it applies to you and the plan participant (your deceased mother) qualifies. I am sorry for your loss.

TurboTax will walk you through the process.

Should I use Form 4972? 

If you (the plan participant) were born before January 2, 1936, you may be able to use IRS Form 4972 to reduce the taxes on a lump-sum distribution. Assuming you qualify, the IRS allows you to elect one of five methods of taxation for lump-sum distributions:

• Report part of your withdrawal as a capital gain, with the remainder being ordinary income;
• Report part of your withdrawal as a capital gain, and use the 10-year tax option for the remainder;
• Use the 10-year tax option for the entire balance withdrawn;
• Roll over all or part of the distribution, and report any withdrawals as ordinary income; or
• Report the entire distribution as ordinary income.

The option that is best for you depends on your personal financial situation, but the benefit of Form 4972 is that you have tax options. Those who don't qualify for Form 4972 will have to use option #5 only.

• IRS Publication 575

Use the link to review more details about whether the lump sum method is allowed for your situation.

Yes, I did mean box 16, the state will tax it if applicable.

[squidlady]

Hi @DianeW777  - I appreciate your help very much. 

It was just a one time death benefit payout of about $1000 - why would there be any kind of 10-year tax option on such a small, one-time distribution?

I still don't know which option does apply in my situation, the "Should I use" link you show is saying "if YOU were born..." because SHE was born in 1935, not me.

That would lead me to believe that I would just report the entire distribution as ordinary income and I would not use Form 4972, does that sound right? Then how do I do that?

When I am in TT at the "Lump Sum Distribution Tax" screen - which displays differently when I switch options:

The tax on the lump distribution is $50 and the total tax amount is $30k (which I do not understand at all, since it was just a $1000 payout)

When I choose "Try a Different Option" the LSDT screen shows:

We calculated the tax by not using the special averaging method on my lump sum distribution and the total tax is $32k.

Again, this doesn't make any sense to me at all - where are these $30k + numbers coming from on a one-time $1k payment? (If I don't need to understand this aspect, please just say so, thanks!)

But more importantly, which of the 2 methods do I use on TT? NOT using the special averaging method or the "other" method?

If it's my choice then I'd say I'd like to report it as ordinary income this year and not deal with it in future at all. And from these 2 options on the LSDT screens, I cannot determine which one is the Form 4972 option.

Sorry but I've been using TT for umpteen years and have never come across this and it's baffling me. Thank you so very much.

[DianeW777]

You can enter your Form 1099-R using the lump sum averaging if the overall tax on your return is less.  You do not enter this again in the future, this is all handled on the current year tax return. TurboTax shows you the total tax either way.

I don't see the numbers you show, I show only the difference in the total tax depending on the option I choose to use.  Select 'Try a different option' after you answer the questions about the lump sum election (Form 4972).  Whichever way shows the lowest tax amount in total is the option you should choose.  In my scenario it is lower to use the lump sum method.

@squidlady

[squidlady]

@DianeW777  Thank you again. I am guessing (??) that the reason I saw the $30k was related to the rest of my return? Anyway, I did as you suggested and chose the method resulting in the lowest overall tax, and TT showed no problem with it. Nor with my original question about the boxes from out of state.

Here is what I hope is my last question on the matter. When I got to my state taxes, there was a screen which asked 5 questions. Before the questions, it said "You are not qualified to use this schedule" but I don't know what schedule it was talking about, and if I need to do anything.

In order to answer this, do you need me to list the 5 questions and my answers? I ran TT's State Check and nothing was flagged so I'm assuming this is all OK?

I now see I can attach a screenshot, which I am doing, showing the 5 questions and my answers. I've blocked otu my name.

[DianeW777 · Accepted solution]

Yes, I reviewed your screenshot and your answers are appropriately answered. You should be confident to file your tax returns.

[squidlady]

Sorry but I am finally finishing my taxes and noticed something.  I had a wrong entry earlier when I was writing about this. On "Select your State" for this one-time benefit, it asked if I received the form while living in one of the following states. Since she lived in NY, I mistakenly checked "NY" - but I haven't lived there for many years, I live in CA. So since I changed that entry, the questions TT is asking me are different.

Continuing screens - yes Mom was born before 1949, Yes, all of the withdrawal was an RMD, then do I want to use the special averaging method. If I choose YES  then YES on the next screen, then YES I received this income as the beneficiary of someone who died, YES she was born before 1936, now here is my question. 

Did I use Form 4972 after 1986. I have to say no to that one, I'm not familiar with that form. How would I "use" that form anyway?

Then when I say no to that and move to the next screen it asks me for the Death Benefit Exclusion and Federal Estate Tax Paid. I do not know these answers, nor how to get them.  I left them blank, then moved on. When I got to the next screen I tried "Try a Different Option" and that raised my refund.

The refund amount I'm showing now is the same as when I had erroneously ticked the "NY" box. So I am assuming I'm ok.

I ran an error check and nothing came up. So - thank you for bearing with all of this, as long as I passed the error check, am I OK? Do you have enough info to answer this? Thank you again.

[spascare]

I'm at the filing point and it's telling me I need to correct something regarding box14a on my NYS tax form.  I don't know what it wants me to do!!  I can't even find 14a.

[AmyC]

1099-R box 14 is for state tax withheld. If you are claiming tax paid to NY, it should be in box 14, NY in box 15. 14a tells me you have more than one state listed in this area. Please review your entries on the 1099-R and in the NY program. The NYS form has unemployment compensation on line 14,

@spascare

[spascare]

Thank you for your help. I couldn’t find what I might’ve done wrong in my 1099 – R so I’m going to just start over. I’m going to start my New York State tax over again also. Thank you for pointing me in the right direction.