CSA 1099-R taxable amount

[mandm]

I am doing my father's taxes for the first time this year and am having trouble figuring out the taxable amount from his OPM annuity.  Since box 2a is "unknown" and there is an amount in box 9b, I know I have to figure out the taxable amount.  However, it appears I can't use the Simplified method because he retired in 1984.  Looks like he was supposed to use either the 3 year rule or or the general rule. Do I need to see if he still has his returns from the 80's to see what he did or is there an easier way?  Last year he incorrectly(?) used the Simplified method.

I used the simplified method in my initial pass and got a correction message in the review portion because of the start date being earlier than 1986.  Appreciate any help.

[ErnieS0]

Check your father’s prior year returns to see the taxable amount reported. You probably don’t have to go all the way back to the 1980s.

The last few years will show what’s being reported. As you mentioned, there’s no guarantee your father did his taxes correctly. Civil Service retirement is complicated.

You may be receiving an error because either the plan cost or amount previously recovered are not correct. 

Depending on the software previously used, there will probably be a worksheet showing these amounts.

[mandm]

He did his taxes manually and I know he used the simplified method last year.  If you just use the simplified method worksheet like he did, it looks like everything's fine cause there's no mention of pre-1986.  But if you actually read through Pub. 721, you'll see that the simplified method can only be used if the annuity started after July 1, 1986.  His started in 1984 so his choices were the general rule or the 3 year rule.  The error that pops up on turbotax is due to the date - 1984 vs 1986.

[KrisD15 · Accepted solution]

You should be able to continue using the Simplified Method. 

The General Rule and Simplified Method are the same. 

He should have been reporting the same dollar amount as the return of employee contribution (the tax-free portion) 

The only difference is that Pre-1987 does not have a limit to the return of employee contribution. 

According to the IRS:

"Under both the General Rule and the Simplified Method, each of your monthly annuity payments is made up of two parts: the tax-free part that is a return of your cost, and the taxable part that is the amount of each payment that is more than the part that represents your cost

(unless such payment is used for purposes discussed under Distributions Used To Pay Insurance Premiums for Public Safety Officers, later). 

The tax-free part is a fixed dollar amount. It remains the same, even if your annuity is increased. Generally, this rule applies as long as you receive your annuity. "

"Annuity starting date before 1987. 

If your annuity starting date is before 1987, you can continue to take your monthly exclusion figured under the General Rule or Simplified Method for as long as you receive your annuity. 

If you chose a joint and survivor annuity, your survivor can continue to take that same exclusion. The total exclusion

may be more than your cost."

Pub 721

[anneaber]

I am helping with a friend's return.  He has a CSA 1099R with Box 1 showing the gross distribution $23,940.00 but UNKNOWN box 2a.  Box 9b has $26,893.00.  Last year it was reported full taxable.  This year it is saying it is not taxable.  I have gone back through it and have marked all the boxes the way being told.  I just don't know if this is right or wrong.  HELP

[BillM223]

@anneaber

"Last year it was reported full taxable" Who reported it that way? TurboTax or box 2a on the CSA 1099-R?

What was in boxes 2a and 9b on the 2020 CSA 1099-R? 

Your description seems inconsistent, which means that I am misunderstanding something. So please help me help you.

[anneaber]

I just have copies of the F1040, I will have to see if I can have her find the F1099 for 2020.  It was prepared by someone else and on the 2020 return, it was being treated a fully taxable.  I will have her search for it.  Thank you. 

[BillM223]

I wish you luck hunting. You may want to help this person file an extension so you are not crunched for time. See this Intuit webpage.

[PaulD CPA]

From IRS Publication 721:

3-Year Rule

If your annuity starting date was before July 2, 1986, you probably had to report your annuity using the 3-Year Rule. Under this rule, you excluded all the annuity payments from income until you fully recovered your cost.

After your cost was recovered, all payments became fully taxable. You can't use another rule to again exclude amounts from income.

The 3-Year Rule was repealed for retirees whose annuity starting date is after July 1, 1986.

With this in mind and annuity start date in 1984, the full amount is taxable in 2023.  There was no 3-Year option in TurboTax so I entered the full amount in Box 2a on the CSA-10990R.  On the screen labeled Describe to Taxable Amount, I answered

Yes, the taxable annuity amount was used as the taxable amount.  

No further questions about the CSA-1099-R were asked and the full amount appeared on Form 1040, Line 5b as expected.