1099-R received for cashing in a life insurance policy but box 2a is empty

[goldenisles]

1099-R received from cashing in a life insurance policy. Box 2a is empty so TurboTax is pulling box 1 and saying that amount is taxable. Box 5 shows the amount I had contributed and it is greater than Box 1.  So shouldn't this amount in Box 1 be non taxable then? TurboTax does not ask any additional questions to allow me to figure this out. If I manually put zero in Box 2a this should fix the calculation but want to be sure before I do this. I don't want to be audited. Box is checked: taxable amount not determined and total distribution. Box 7 distribution code 7. All other boxes blank.

[Carl]

I would venture to guess that if 2a is empty, then 2b is checked.

Most likely you cashed out a whole life policy. There are several different types of whole life policies. One type that will generate a tax document of some type when cashed out, is one that earns interest or dividends. Most likely, that's the type you had. When you cash out the policy, the cash value paid out also includes the accumulated interest/dividends. That's why box 1 is most likely less than the amount of cash out value actually paid. So the amount in box 1 is taxable income to you in the tax year it was paid out.

[MaryK4]

Just to clarify, please follow these directions to View your 1040. How do I preview my TurboTax Online return before filing?

Look for the amounts on Box 5a and 5b to see if it is taxable.

[goldenisles]

Box 1 is exactly the amount I received as a cash out payment on the policy. Box 5 shows the amount of premiums I paid which is more than double the amount of Box 1. I have gone through the interactive tax assistant on the IRS website as suggested by another poster and read through Publication 525. Both of these state the same thing: if what you paid in premiums Box 5 is greater than the amount shown in Box 1, then it is not taxable. To achieve this in TurboTax I have to put a zero in Box 2a contrary to what the 1099-R reports.

[goldenisles]

TurboTax wants to apply this Box 1 amount on Box 5 on 1040 as taxable. It does not ask additional questions to determine the true taxable amount. Another poster suggested using the Interactive Tax Assistant and to read Publication 525 which I have done. Both respond the same if you have paid more in premiums than what you receive as a payout it is not taxable. I just need to achieve this within TurboTax. Since TurboTax does not prompt through this situation the only way for me to remedy this is to put a Zero on Box 2a on the 1099-R.

[ThomasM125]

@goldenisles I entered a form 1099-R and put a code of "9 - cost of current life insurance" in box 7 and the distribution did not show as taxable. Do you have a code 9 in box 7? If so, you can try deleting the entry and re-entering it.