I am retired on disability and I reached Minimum Retirement Age (MRA) in tax year 2020. I receive a CSA 1099-R yearly. Tax year 2019, all my income was reported as “Wages.” Tax year 2021, all my income will be reported as “Pension/Annuity.” Technically, in tax year 2020, eight months of income were “Wages” and four months were “Pension/Annuity” if going by a specific day (birthdate) for before and after MRA.
My question is, for tax year 2020, do I report part of my income as “Wages” and part as “Pension/Annuity” -OR- all income as “Pension/Annuity?” If part “Wages” and part “Pension/Annuity,” how do I do this in TurboTax? I am not prompted in TT Interview mode and it is not done automatically. Further, I could not find a way to do it in TT Forms mode (using only a single CSA 1099-R entered into TT).
The older 2019 IRS instructions seem to be specific about on “the day after you reach MRA,” all income is “Pension/Annuity.” IRS reference below (for 2019 returns, 2020 not available yet):
Publication 575 - Pension and Annuity Income
For use in preparing 2019 Returns
“If you retired on disability, you must generally include in income any disability pension you receive under a plan that is paid for by your employer. You must report your taxable disability payments as wages on Form 1040 line 1 until you reach minimum retirement age. Minimum retirement age is generally the age at which you can first receive a pension or annuity if you aren't disabled. Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity.”
Enter two Form 1099-Rs for the same payer, one with the amount received before you reached Minimum Retirement Age (use Distribution Code 3) and the other with the amount you received after reaching MRA (use Distribution Code 7).
Make sure the amounts in boxes 1, 2 and 4 of each form add up to the totals in the Form 1099-R you received. If there were any state or local amounts reported, you can probably report them all on one of the "split-1099-Rs"). This work-around should not have any effect on your tax calculation or create a mismatch with the IRS record of the 1099-R - they are concerned with the total amount paid to you, not whether it is split between two 1099-Rs.
Thank you so much for taking time to respond to this item.
-My "Normal," as opposed to "Minimum," plan retirement age is 62 (When OPM FERS Disability is converted to Regular Retirement) so I am thinking on both CSA 1099-Rs leaving the distribution code as "Disability (3)" rather than using Code "7" on the second one.
-Since I know the federal and state taxes specifically for each month, both before and after MRA, I was thinking of entering the proper amounts into each of the two respective 1099-Rs (the overall totals will be correct when the two 1099-R individual totals are added together).
-As you said and I confirmed, for me, the calculated tax is the same whether I use "Wages" and "Pension/Annuity" or just "Pension/Annuity" alone (I did it both ways in TT).
My only real concern is whether the IRS matching program will try to match on an "individual" 1099-R that it already has from the employer (OPM in my case). In that case, if I enter two 1099-Rs per plan, it could be an issue. However, if like you said, they look only at the "total" from a given employer, there would not be be an issue.
May I ask, have you known anyone to use the "multiple 1099-R approach" for the MRA situation and if so, have he or she had any issues with the IRS?
Thanks again for all your help.
I do not know anyone personally that has done this. Just make sure the amounts in boxes 1, 2 and 4 of each form add up to the totals in the Form 1099-R you received. If there were any state or local amounts reported, you can probably report them all on one of the "split-1099-Rs"). This work-around should not have any effect on your tax calculation or create a mismatch with the IRS record of the 1099-R - they are concerned with the total amount paid to you, not whether it is split between two 1099-Rs.
If the amount of income reported is accurate, IRS will not have any concerns.
Thank you for taking time Cynthia for your reply and advice. I really appreciate it.
I really like TurboTax and wonder why the programming for this proper splitting of Wages and Pension/Annuity is not coded into the software since one enters a specific MRA date and the software could do this automatically. I have to think very few people will ever "split" these amounts given the manual nature of this approach, but I really appreciate everyone's advice.
In the spirit of full disclosure, I ended up not splitting the amounts and just reporting it all as Pension/Annuity since the TT software does it that way and I had concerns about a 1099-R mismatch with an IRS checking program if I used two 1099-Rs in case they compare 1099-Rs on an individual basis for some reason. Since the tax liability is the same either way, I just went with the way TT has the software coded.