What Form???

[SueBaby]

Client called on he had a wreck and was out of work for 5 months. He took out his 401-K and said there is a form to fill out and not use that on his taxes with no penalty.

What form can that be? I thought of 1099-C but he does not have that. I have looked it up and can't come up with anything. Have to mail "that form" and the doctor's letter to the IRS.

Any information on this matter would help alot . Thanks you again

[Nashville]

Check out the 5329

Taxpayer may or may not be correct. There is an allowance which forbears the penalty for extreme medical expenses on form 5329 (where the penalty is calculated).

The "extreme" medical expenses to forbear the penalty means the amount his medical expenses exceed the 7.5% itemization threshhold.

So if the threshhold is exceeded, I would file a Schedule A (even if he otherwise uses the standard deduction).

Example: 401k cashes out for $10,000. Taxpayer has AGI of $50,000, meaning his medical threshhold is $3750. He takes a standard deduction of $10,900 because he doesn't have enough Sch. A expenses to exceed the standard deduction.

However, he spends $11,000 on medical expenses, meaning he exceeds the threshhold by $7250. This means he is exempted from the 5329 penalty on $7250 and has to pay the penalty on $2750, the remainder of the distribution.

Each type of exemption has a code (to be found in the instructions for Form 5329). The amount to be exempted is entered in Part 1, Line 2.

[SueBaby]

Taxpayer may or may not be correct. There is an allowance which forbears the penalty for extreme medical expenses on form 5329 (where the penalty is calculated).

The "extreme" medical expenses to forbear the penalty means the amount his medical expenses exceed the 7.5% itemization threshhold.

So if the threshhold is exceeded, I would file a Schedule A (even if he otherwise uses the standard deduction).

Example: 401k cashes out for $10,000. Taxpayer has AGI of $50,000, meaning his medical threshhold is $3750. He takes a standard deduction of $10,900 because he doesn't have enough Sch. A expenses to exceed the standard deduction.

However, he spends $11,000 on medical expenses, meaning he exceeds the threshhold by $7250. This means he is exempted from the 5329 penalty on $7250 and has to pay the penalty on $2750, the remainder of the distribution.

Each type of exemption has a code (to be found in the instructions for Form 5329). The amount to be exempted is entered in Part 1, Line 2.

Thanks that helped alot. I will read up on it before he comes and have it ready. Thanks again could not do without everyone helping. Thanks for such a 'team' play on business.