Non qualified annuity principal showing as gross income

[chrismeagher]

Invested $200000 non qualified funds in an annuity. On the 1099-R the entire amount plus interest is showing in box one as gross distribution. Even though the IRS is only going to tax the interest, they include the entire amount as gross income. Social Security raises my medicare premium (IRMAA) based on income. The $200000 is not income, I already paid tax on it. How do I correct this?

[AmyC]

I am assuming the box 1 and 2a are the same full amount. The best thing to do is contact the issuer and have them send a corrected form.

If you choose not to go that route, you would need to enter the correct amount in 2a and keep all of your paperwork for proof in case the IRS asks.

[dmertz · Accepted solution]

There is nothing wrong with the Form 1099-R.  Being "gross income" just means that it must be reported on your tax return even if it is not taxable.

"Social Security raises my medicare premium (IRMAA) based on income."

IRMAA is based on AGI which only includes taxable income.  The fact that gross income is higher is irrelevant.  Only the interest on the nonqualified annuity shown in box 2a of the Form 1099-R is adding to your AGI and affecting your IRMAA.