Form 1099-R: What It's Used for and Who Should File It

What Is Form 1099-R: Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans?

Form 1099-R: Distributions From Pensions, Annuities, Retirement, or Profit-Sharing Plans is an Internal Revenue Service (IRS) tax form used for reporting passive income and distributions from retirement plans. The form deals specifically with annuities, profit-sharing plans, retirement plans, individual retirement accounts (IRAs), insurance contracts, or pensions. 

The form is one of many in the 1099 series. They are known as information returns and are used to report various types of income that a person may receive other than their salary, such as independent contractor income, interest, dividends, or government payments.

Who Can File Form 1099-R?

According to the IRS, an entity that manages any of the accounts listed below is required to fill out a 1099-R form for each distribution of over $10:

• Profit-sharing or retirement plans
• Any IRA
• Annuities, pensions, insurance contracts, or survivor income benefit plans
• Permanent and total disability payments under life insurance contracts
• Charitable gift annuities

In addition, rollover transfers from one retirement account to another will also be recorded on form 1099-R. A direct rollover is recorded with the distribution code G or H in box 7.

Some plans allow individuals to borrow against the savings in their retirement account, provided that they repay the loan with interest over time. These loans are not recorded on Form 1099-R, since they are not considered a distribution.

However, if the borrower fails to make regular payments, the missed payments will be considered an early distribution and reported on form 1099-R with the distribution code L. These distributions are considered taxable income and may incur early withdrawal penalties.

Like most 1099s, 1099-R forms must be sent to recipients by January 31 of the year following the tax year. Anyone who receives a 1099-R must include the amount shown on it in their income tax return and pay applicable taxes.

If you receive a 1099-R, keep in mind that not all distributions from retirement or tax-deferred accounts are subject to tax. A direct rollover from a 401(k) plan to an IRA is one example. If you are unsure whether a distribution is taxable, it may be a good idea to consult with a tax professional.

How to File Form 1099-R

The form is provided by the plan issuer, who must give a copy to the IRS, the recipient of the distribution, and the recipient's state, city, or local tax department. As with other IRS forms, the 1099-R form should also include the payer's name, address, telephone number, and taxpayer identification number (TIN). It should also have the recipient's name, address, and taxpayer identification number, which for most individual taxpayers is their Social Security Number (SSN).

Some of the other items included on the form are the gross distribution paid during the tax year, the amount of taxable distribution, the federal income tax withheld at source, any contributions made to the investment, or insurance premiums paid, and a code representing the type of distributions made to the plan holder.

A 1099-R form uses a variety of numbered and lettered codes to indicate the type of distribution. They are entered in Box 7 on the form. A table of the codes is included in the instructions.

As noted above, Form 1099-R is used to record and report distributions from retirement accounts. In addition to the recipient's identifying information, including their name, date of birth, and other personal data, it also includes information about the nature of the money being distributed.

This denotes information about the owner's contributions to the account, the unrealized value of any securities held in it, capital gains, and any taxes that are due on the distribution. This information is then used by the owner of the account when they file their annual taxes.

Other Relevant Forms

Form 1099-R is one of many different types of 1099 forms, collectively referred to as the information return forms. Information returns are used by the IRS to keep taxpayers from underreporting their income. Each type of information return is intended to capture a different type of payment or transaction. Although there are approximately 20 types of information returns, most taxpayers will only ever receive a handful of them. Here are the most common Form 1099s.

Form 1099-INT: Interest Income

Form 1099-INT is issued by all financial institutions to investors at the end of the year. It includes a breakdown of all types of interest income and related expenses. All financial institutions and payers of interest must issue a 1099-INT for any party to whom they paid at least $10 of interest during the year.

Form 1099-DIV: Dividends and Distributions

Form 1099-DIV is sent by banks and other financial institutions to investors who receive dividends and distributions from any type of investment during a calendar year. Investors can receive multiple 1099-DIVs. Each 1099-DIV form should be reported on a taxpayer's tax filing.

Form 1099-MISC: Miscellaneous Income

Independent contractors, freelancers, sole proprietors, and self-employed individuals receive Form 1099-MISC from each client that paid them $600 or more in a calendar year. This form is also used to report miscellaneous compensation, such as rent, prizes, awards, healthcare payments, and payments to an attorney.

Form 1099-K: Payment Card and Third-Party Network Transactions

Form 1099-K reports the gross amount of all reportable payment transactions. Taxpayers are sent a Form 1099-K from a payment settlement entity if they receive payments in settlement of reportable payment transactions. A reportable payment transaction is a payment card transaction or a third-party network transaction, such as Venmo, Zelle, and Paypal.

Reportable transactions include any that arise from payment card transactions, such as debit, credit, and prepaid cards. Any transactions that are settled through third-party payment networks also qualify. The table below sets out minimum reporting thresholds.

Source: Understanding Your Form 1099-K (IRS)

In other words, taxpayers should receive a 1099-K from all payment settlement entities that process debit card, credit card, or prepaid credit card payments on the taxpayer's behalf and from any PSE that processes more than $600 in third-party network transactions as of 2023. Payments to and from family members and friends are not reportable transactions.

Form 1099-B: Proceeds From Broker and Barter Exchange Transactions

Form 1099-B is used by brokerages and barter exchanges to record customers' gains and losses during a tax year. Individual taxpayers will receive this form (already filled out) from their brokers or barter exchange.

Form 1099-G: Certain Government Payments

Taxpayers receive Form 1099-G if they receive unemployment compensation payments, state or local income tax refunds, or certain other payments from a government or government agency. If you receive this form, you may need to report some of the information on your income tax return.

The Bottom Line

Form 1099-R is one of many documents used to record taxable payments for the IRS. While it may seem complicated, most people will never need to fill out a form 1099-R by themselves. Instead, they should automatically receive the form whenever they take a distribution from a pension or retirement account.