OMB Survivor Annuity

[equinecpa]

My client has an OMB 1099-R as follows:

Box 1 5000
Box 2a taxable amount: unknown
Box 3 Employee contributions: 2000
Box 9b: Total employee contributions: 10000

How do I determine what is taxable? Would it be box 1 less box 3? ie $3000?

Thanks

Carolyn

[ChEAr$]

survivor annuity

My client has an OMB 1099-R as follows:

Box 1 5000
Box 2a taxable amount: unknown
Box 3 Employee contributions: 2000
Box 9b: Total employee contributions: 10000

How do I determine what is taxable? Would it be box 1 less box 3? ie $3000?

Thanks

Carolyn

This sounds like client is spouse of a civil service annuitant who died; right?

If so, since the annuitant was already drawing retirement under the simplified general
rule, the survivor simply continues to exclude the same monthly amount as determined
on annuitant's death as he did. Or "she" did. whatever.

[Mike Mac]

Omb 1099-r??

I've never seen an OMB 1099-R. At first glance I thought you might have been talking about a federal government OPM type 1099 whose form number is actually CSA 1099-R but they don't even have a box 3.

Mike

[erchess]

Not Nearly Enough Information

How old is your client?

Is this the first year he or she has drawn this annuity?

I can already tell you that if this is not the first year she has drawn the annuity you need the returns for the first and ideally every subsequent year. If those are unavailable the safe harbor would be to tax the entire amount received.

If it is the first year your software should have a Pension/Annuity Worksheet or you could use the one on page 13-20 of the TTB 1040 Edition.

And as Harlan pointed out if as seems probable she is the survivor of someone who had already begun to draw then things continue with the same taxable percentage.

[equinecpa]

How about this: My clients husband started and stopped receiving this in 2008 (he too died in 2008).

I doubt very much I'll be able to track down the original paperwork, so I fear I must include it all in income. I did figure out that the box 3 is insurance contributions.

[DaveO]

If 2008 was first year then you can use the simplified general rule.

[Mike Mac]

Using the Simplifed General Rule you can probably back in to the correct amount rather than paying taxes on the whole amount. If you know his age when he retired and the the wife's age you should be able to come up with the number. You already know the amount of original contributions to use as the numerator in the equation.

I can tell I've been in the business for awhile. Two of my federal retiree clients have outlasted their tax-free portion of the retirement checks this year and will have to start paying taxes on the whole amount next year. Many years ago the law was that you could keep deducting that same tax-free amount until you died.

[Larmil]

Using the Simplifed General Rule you can probably back in to the correct amount rather than paying taxes on the whole amount. If you know his the age when he retired and
the the wife's age you should be able to come up with the number. You already know the amount of original contributions to use as the numerator in the equation.

I can tell I've been in the business for awhile. Two of my federal retiree clients have outlasted their tax-free portion of the retirement checks this year and will have to start paying taxes on the whole amount next year. Many years ago the law was that you could keep deducting that same tax-free amount until you died.

I remember years ago that if you recovered your cost within the first three years the distributions were non-taxable until you recovered your cost. Of course, my memory is faulty at times so don't take my word for this.

[ChEAr$]

You remember correctly

I remember years ago that if you recovered your cost within the first three years the distributions were non-taxable until you recovered your cost. Of course, my memory is faulty at times so don't take my word for this.

I used that three year rule to client's advantage once. he retired from civil service and
would recoop his contributions within two and half years. So in retirement year, I got him to set up IRA, and one for his wife, to which each contributed the max of 2,000. This was
in February of tax season, and those two IRA's were in 90 day certificates which they cashed in 90 days later, thus shifting 4000 of that income into a tax year with very little,
if any, gross income.

[PapaTony]

Additional question

I have a similar situation.

I have the last few years returns and the entire amount is excluded, but I don't have all the worksheets.

It's a code "4" in box 7. The annuity start date was 1978 (not a typo) and DoD was in 2000.

Total contributions was 18139 and gross distribution was 24816.

Do I have to try and get all the worksheets from prior year or use the same exclusion percentage?

Thanks.

[Mike Mac]

If the annuity start date was 31 years ago, I'd have to believe that all of the original contributions have already been captured and therefore the entire amount will be taxable. I believe back in 1978 the three-year rule that has been mentioned in earlier posts applied. I was doing taxes back than but I don't keep copies of client records back that long.

[ChEAr$]

If the annuity start date was 31 years ago, I'd have to believe that all of the original contributions have already been captured and therefore the entire amount will be taxable. I believe back in 1978 the three-year rule that has been mentioned in earlier posts applied. I was doing taxes back than but I don't keep copies of client records back that long.

Exactly correct since the old three year rule used up the contributions way back then, thus
total received has been taxable every year since. And remains so.

Don't worry about any previous returns, except to tell client the mistake on part of previous preparers and maybe suggest amendments, but of course that will be client's decision.

[PapaTony]

Exactly correct since the old three year rule used up the contributions way back then, thus
total received has been taxable every year since. And remains so.

Don't worry about any previous returns, except to tell client the mistake on part of previous preparers and maybe suggest amendments, but of course that will be client's decision.

The question I have is on the Exclusion Limits per Pub 17 p75:

Exclusion not limited to cost.

If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. If you chose a joint and survivor annuity, your survivor can continue to take the survivor’s exclusion figured as of the annuity starting date. The total exclusion may be more than your cost.

The way I read this, since the deceased husband was excluding the income, she can also.

[Mike Mac]

I copy/pasted the below information from Publication 721
(the pub that deals with federal retirement matters). As you can see, the amount should be fully taxable to the survivor due to the fact the entire cost was captured under the 3 year rule.

CSRS or FERS Survivor Annuity
CSRS or FERS annuity payments you receive as the
survivor of a federal retiree are fully or partly taxable under
either the General Rule or the Simplified Method.
- Cost recovered. If the retiree reported the annuity under
the Three-Year Rule and recovered all of the cost tax free,
survivor annuity payments are fully taxable. This is
also true if the retiree had an annuity starting date after
1986, reported the annuity under the General Rule or the
Simplified Method, and had fully recovered the cost tax
free.

[ChEAr$]

My client has an OMB 1099-R as follows:

Box 1 5000
Box 2a taxable amount: unknown
Box 3 Employee contributions: 2000
Box 9b: Total employee contributions: 10000

How do I determine what is taxable? Would it be box 1 less box 3? ie $3000?

Thanks

Carolyn

Back to basics for a moment. Your form 1099R is from Civil service, and the OMB has
no significance atall. That office just has to approve all tax forms. Now,

You said Box 3 above; but is it not really box 5? should be.

If deceased retired in 2008, and they have not figured taxable amount like they're supposed to when one has reached normal retirement age, that means he wasn't eligible to retire yet. Is box 7 coded 3? disability?

IF all this is true, then for 2008 the entire gross was taxable nad for 2009 you need to consult a copy of IRS publication 721 for how to handle it further for the surviving spouse.