1099-R distribution mysteriously treated as nontaxable income

[Seigga84]

Hello TurboTax community! I carefully entered information from a 2023 Form 1099-R into TurboTax Premier, and TurboTax is treating it as non-taxable income. So, TurboTax says I'm getting a huge refund ... which doesn't sound right.  Is something wrong with the software or with my 1099-R?  Details: This is one of my traditional IRA accounts, it's unmanaged, it's all cash (likely came from a direct rollover of my lump sum pension when I retired three years ago), and it's not inherited. On the 1099-R, boxes 1 and 2a have the same six-figure amount. Box 2b is checked (taxable amount not determined). Box 3, box 5, and box 6 are blank. Box 7 is 7 (normal distribution), and the IRA/SEP/SIMPLE box is checked. A lot of money was withheld in box 4 (Federal) and box 14 (my state). I don't have either a W-2 or earned income for 2023. Thanks for your help!

[KrisD15]

It depends. 

It may be that your income was low enough that when the Standard Deduction (or Itemized Deductions) were applied, you owed little or no tax. 

Look at your 1040 lines 11, 12 and 15.

Line 11 shows your adjustable gross income, line 12 shows your deduction and line 15 shows your taxable income.

If you had more tax withheld than needed, you'll get that back as a refund. 

You might also have credits listed on lines 17 - 32. 

So it may not be that the distribution itself is non-taxable, but that your total income did not generate a tax liability. 

For TurboTax Desktop, switch to Forms (top right) 

To View using TurboTax Online:
Select Tax Tools on the left side-bar
Select Tools from that drop-down
Select “View Tax Summary” on the TOOLS CENTER screen
Select “Preview my 1040” which now appears on the left side-bar
 

[DoninGA]

The amount from box 2a on the Form 1099-R should have flowed to the Form 1040 Line 4b as taxable income and the amount of federal taxes withheld in box 4 should have flowed to the Form 1040 Line 25b as a tax payment.  Did you indicate after entering the Form 1099-R that you rolled over the distribution to another tax deferred account or back to the same account?  If so, this would made the distribution as not taxable.

[Seigga84]

Thanks for this, KrisD15 - as I look over your suggestions (which look fine) I see a mystery in lines 4a and 4b that I'll discuss further in my response to DoninGA. 

[Seigga84]

DoninGA, thank you for taking the time to help.  The box 2a on form 1099-R flowed to form 1040 line 4a as an IRA distribution, but it did not flow to line 4b as taxable income.  The federal taxes in box 4 on form 1099-R did flow to form 1040 line 25b.  After entering the 1099-R info, TurboTax asked me what I did with the money.  I could choose from two radio buttons:  #1 said I moved the money to another retirement account, and #2 said I did something else with it (cashed out, etc.).  My answer was #2 because I cashed out.  Does this shed new light?  I think it should be taxable ...

In the interest of giving too much information, I have a 2nd 1099-R from an inheritance (Distribution code 4 on box 7), and TurboTax handled it just fine.  I only have two 1099-Rs.

[DoninGA]

@Seigga84 From what you wrote it sounds like you reported the Form 1099-R correctly and also indicated that you did something else with the income (not rolling it over)

I would recommend that you delete this Form 1099-R and re-enter manually.  The program should be entering the amount in box 2a of the Form 1099-R on the Form 1040 Line 4b as taxable income.

[Seigga84]

Good suggestion - thanks, but nothing changed.  I deleted the 1099-R and saw my federal refund shrink considerably.  I saved the file and exited TurboTax.  I started TurboTax again and carefully added the 1099-R.  I told TurboTax I cashed it out, it wasn't used for an HSA, it wasn't for disaster relief, etc.  TurboTax suggests I'm still getting a giant refund, and box 2a in the 1099-R flowed to box 4a on the form 1040 but not box 4b hmm...

[DoninGA]

@Seigga84 Then there is something else going on with this 1099-R entry.

You should contact TurboTax support and speak to agent where they may be able to assist you.  They can do a screen share, with your permission, to help find the problem.

See this TurboTax support FAQ for contacting support - https://ttlc.intuit.com/turbotax-support/en-us/help-article/account-management/turbotax-phone-number...

Support can also be reached by messaging them on these pages https://www.facebook.com/turbotax/ and https://twitter.com/TeamTurboTax

[VolvoGirl]

Have you updated the program?  Go up to Online- Check for Updates.  And quit the program and reopen it.  Reboot your computer.  Also for Windows check if you need to update Windows system.  That's been helping fix problems.  

[DoninGA]

@VolvoGirl Thanks for mentioning that.  I should have suggested the same but forget to post the info.

[Seigga84]

VolvoGirl, I booted up my computer this afternoon (first time to turn it on all day) and started TurboTax.  TurboTax installed the latest update, but the problem remains.  I'm on hold with TurboTax support now.

[dmertz]

Do you have basis in nondeductible traditional IRA contributions?

Is Form 8606 present in your tax return?

Did you click the Continue button on the page that lists the Forms 1099-R that you have entered and answer the additional questions that TurboTax presents, particularly those regarding your basis in nondeductible traditional IRA contributions and your year-end balance in traditional IRAs?

[Seigga84]

dmertz yes, I have the basis reported, and I have a Form 8606 in my 2023 return.  I didn't contribute to an IRA in 2023.  And I answered the follow-up questions, including my YE2023 balance in traditional IRAs.

My phone call with TurboTax gave me a possible culprit, and I'll address that in my next response.

[Seigga84]

DoninGA I called TurboTax and, after being on hold for only five minutes, spoke with an agent.  We were both baffled about why the distributions were flowing to 1040 box 4a but not box 4b until she suggested seeing what happened if I unchecked the IRA/SEP/SIMPLE box.  When I did, the giant refund disappeared.  So, I closed TurboTax without saving, and now I'm contacting my financial services company and asking them to explain why the IRA/SEP/SIMPLE box is checked on that particular 1099-R.

[dmertz · Accepted solution]

Unmarking the IRA/SEP/SIMPLE box implies that the distribution is not from an IRA and would be in disagreement with what the actual Form 1099-R which says that the distribution is from a traditional IRA.

The actual taxable amount of a distribution from a traditional IRA is unknown to the IRA custodian, which is why they are required to indicate the same amount in box 2a as is in ox 1 as the default assumption and to mark box 2b Taxable amount not determined.  The actual taxable amount is determined on your tax return, in this case by your own entries into TurboTax.

Other than indicating that you rolled the entire distribution over to another traditional retirement account, which would be indicated on Form 1040 line 4b with the ROLLOVER notation, there are only three reasons that the taxable amount included on line 4b would be zero when the amount is included on line 4a:

1. You have indicated that the entire amount was transferred to a Health Savings Account ("HFD" notation present next to line 4b),
2. You have indicated that the entire amount was paid directly to charity as a Qualified Charitable Distribution ("QCD" notation present next to line 4b), or
3. You have reported basis in nondeductible traditional IRA contributions in excess of the amount distributed and you have indicated that on December 31 you had no balance in traditional IRAs such that the taxable amount calculated on Form 8606 Part I is zero.

It's doubtful that #1 or #2 are the case, otherwise you would probably already know these to be the cause.  That leaves #3 which I addressed in my previous reply.