EIC from 1099-R??

[Beersheba]

Drake has a built-in capability to effectively change a 1099-R to a W-2. When that happens the taxpayer suddenly and miraculously becomes eligible for Earned Income Credit, other factors notwithstanding. TTB confirms that if a 1099-R is a final settlement for a retiree, the 1099-R may be treated a a W-2 for Earned Income purposes.

Are there other circumstances where retirement income can be converted to earned income by changing a 1099-R to a W-2? If so, the sky is the limit for some of these retired folks, as many of them don't make a lot of income and the old age limit of 65 has been eliminated and there are no upper age limits.

???

[Rapid Robert]

" TTB confirms that if a 1099-R is a final settlement for a retiree, the 1099-R may be treated a a W-2 for Earned Income purposes."

Can you provide a more specific cite, so others can see for themselves what you are talking about?

" If so, the sky is the limit for some of these retired folks,"

Yes, this would be a fantastic discovery of a loophole in the tax law! Hopefully we'll have an answer before the end of filing season, so we don't have to prepare amended returns for these folks.

[Beersheba]

Robert the best I can do is from TTB Page 3-16, and I don't see reference to a cite:

1099-R reported on Line 1 rather than Line 5:

• Disability Pensions if the taxpayer has not reached employer's minimum retirement age.
• Corrective distributions of excess salary deferrals or excess contributions to retirement plans.

Thanks for your response...

[Lion]

Those two items are reported on Form W-2. Drake probably has a technique for those items to end up on Line 1 instead of Line 5. Why do you think there are any other reasons?

[Beersheba]

Drake indeed has a technique to report these 1099-R on Line 1 and invoke EIC. And it seems very dangerous to me, because the situation is so fact-dependent that I don't think Drake can allow this and stop potential abuse. Dangerous or not, if one of my clientele qualifies, I'll certainly take advantage of it.

I did ask if there were other situations because sometimes I think I'm only seeing the tip of the iceberg.

Thanks for your response.

[Lion]

As a tax preparer, you will use that Drake option ONLY if your client qualifies and after having your client request corrected forms. If you think you are in danger of potential abuse, please check with a mentor before completing the return!

[Dude]

Drake probably incorporated the feature since there is no upper age limit for EIC in 2021. There is a $10k investment income limit which means basis would be paramount. Would be a nice little social security supplement. Probably not a permanent change though.

[DoubleO]

That feature has been there for pretty much forever (at least as long as I’ve been using it since early 90s), and is used to indicate that the TP is receiving retirement benefits due to disability before the employer’s minimum age of retirement. You quoted it yourself. It is up to the preparer/TP to determine if the shoe fits. Not hard to do. 1099R usually marked with a 3, and TP usually getting SS disability or other disability benefits. Some employers have 55 as minimum age; others are higher. If in doubt, call the employer/plan administrator. Your 70 year old retiree is generally NOT going to qualify. Have you never had this situation in your practice?

[FEDUKE404]

I would be shocked if any tax software creates a situation to "effectively change a 1099-R to a W-2."
This looks like the earlier Nissan "incorrect" W2 discussion redux.
As DoubleO and others have noted above, there are scenarios where Form 1099-R disability/retirement income can be REPORTED as wages on line 1. Your software should offer that option, although such tax situations are infrequent.. It may be that some appropriate verbiage is then automatically included to the left of the income numbers shown on line 1 of Form 1040?

[DoubleO]

You actually attach a statement to the return. If you go to the SCH screen, there is a choice fitting this scenario in the dropdown menu. Choose this, and Drake will automatically create the descriptive EF note.