1099R vs. 1099M

[payrollmom]

Has anyone ever encountered this with their employer???

Here is the situation....We have an incentive for our top 5 retiree's each year and that we give them $5,000.00 check (cut thru A/P) to use towards their Health Care costs (this check is cut the 1st of every January). We are a community college and the Health Care Plan offered through our Pension (when you retire) is not a good price for some retirees. So this is why we offer this incentive. We do this for our retiree's for 5 consecutive years in a row.

Here's my question...........currently our Accounts Payable dept. puts these $5,000.00 payments on a 1099-R and after doing some reseach I think they go on a 1099-M under box #3 - "Other Income"

Here is what I found under "Specific Instructions" for the 1099-MISC form...."At least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments..........."

Then I researched the 1099-R form and the first thing that comes to mind is that whenever you put an amount on this form you always need a "Box 7 Code". So I looked at the codes and there is no code that pertains to cash payments to retirees.

If anyone heard of this or has their employer offer similar incentives, please reply to this Thread.

Thanks,
Gina

[JoshinNC]

Without doing a stitch of research

I vote for neither. I vote that this is reported on a W-2 because it's basically deferred comp to the retiree. It's not a distribution from a qualified plan (1099-R) and it's not a medical payment, as those go to med providers, nor is it for current services performed.

[Lion]

My husband is a retired teacher who receives a state pension and a 1099-R from the state. From his local school district, he receives $3,000/year for 6 years. (Most spend it on health coverage; hubby's goes right into his HSA as he has a high-deductible health plan.) Hubby receives a W-2 with $3,000 reported each year from his old district. That doesn't make it right, but it was researched/vetted by both his city's district as well as the state's Teachers Retirement Board lawyers.

[JoshinNC]

Well, that's two votes for a W-2

My husband is a retired teacher who receives a state pension and a 1099-R from the state. From his local school district, he receives $3,000/year for 6 years. (Most spend it on health coverage; hubby's goes right into his HSA as he has a high-deductible health plan.) Hubby receives a W-2 with $3,000 reported each year from his old district. That doesn't make it right, but it was researched/vetted by both his city's district as well as the state's Teachers Retirement Board lawyers.

Good guess by me.

[payrollmom]

Curious....want to confirm what boxes on W-2 are populated??

My husband is a retired teacher who receives a state pension and a 1099-R from the state. From his local school district, he receives $3,000/year for 6 years. (Most spend it on health coverage; hubby's goes right into his HSA as he has a high-deductible health plan.) Hubby receives a W-2 with $3,000 reported each year from his old district. That doesn't make it right, but it was researched/vetted by both his city's district as well as the state's Teachers Retirement Board lawyers.

Dear Lion,

I just want to confirm that Box 1,3 & 5 (and the State Box) are populated with this $3,000??? And/or are boxes 2, 4 & 6 are populated too??? Did the employer "Gross Up" this payment??

Thanks,
Gina

[Lion]

Oops!

My bad. I remembered a W-2 for 2011, but that's because he taught part year (and a second W-2 from his part-time church job that continues).

I just pulled his 2012 and 2011 forms. The $3,000 stipend he gets for six years from his former school district is reported on Form 1099-R from his school district with $3,000 in Boxes 1 and 2a with a Code 7. He also gets a Form 1099-R from the state Teachers' Retirement Board reporting his pension.

Sorry. Should never trust my memory during tax season, delayed or not.

[payrollmom]

My bad. I remembered a W-2 for 2011, but that's because he taught part year (and a second W-2 from his part-time church job that continues).

I just pulled his 2012 and 2011 forms. The $3,000 stipend he gets for six years from his former school district is reported on Form 1099-R from his school district with $3,000 in Boxes 1 and 2a with a Code 7. He also gets a Form 1099-R from the state Teachers' Retirement Board reporting his pension.

Sorry. Should never trust my memory during tax season, delayed or not.

Dear Lion,

Thanks for responding. Here is our dilemma in Illinois. If you put monies on a 1099-R then Illinois does not recognize it for State purposes, which is wrong because this was cash given to a former EE and it has to be recorded. That's why I'm leaning towards a 1099-M because the Federal AGI flows over to the State of Illinois as beginning income.

Thanks,
Gina

[Burke]

Has anyone ever encountered this with their employer???

Here is the situation....We have an incentive for our top 5 retiree's each year and that we give them $5,000.00 check (cut thru A/P) to use towards their Health Care costs (this check is cut the 1st of every January). We are a community college and the Health Care Plan offered through our Pension (when you retire) is not a good price for some retirees. So this is why we offer this incentive. We do this for our retiree's for 5 consecutive years in a row. Thanks,Gina

This is compensation, pure and simple. They are paying cash payments to the retired employee, to be used as they see fit towards their health insurance. But apparently they are free to do whatever they please with it, since it is not being paid to a health care provider on their behalf. However, it does not go on a 1099MISC. It is W-2, subject to all FICA and withholding taxes, IMO. It would be treated the same as severance pay, and it should be paid out of payroll accounts. If it were paid out of the pension plan, then it might go on a
1099R, but that does not appear to be the case. The pension plan apparently offers health insurance and the retiree is electing not to take it.