Form 1099-R Recipient Checklist — Tax Year 2010
Purpose
Form 1099-R reports distributions from pensions, annuities, IRAs, SIMPLE plans, SEP IRAs, and qualified retirement plans. For 2010, recipients converting or rolling over amounts to a Roth IRA have the option to recognize the taxable conversion amount split equally between the 2011 and 2012 tax years under a special two-year spread rule that applies exclusively to 2010 conversions.
Required Steps
Verify Roth Conversion Split Treatment
You must confirm that box 1 shows the gross conversion amount if you converted amounts from a traditional, SEP, or SIMPLE IRA to a Roth IRA in 2010. The Tax Increase Prevention and Reconciliation Act of 2005 eliminated income limits on conversions beginning in 2010.
This act created a temporary option allowing you to include half the taxable conversion income in 2011 and half in 2012 via Form 8606. Alternatively, the entire amount can be included in your 2010 income instead of splitting it across two years.
Reconcile Box 1 Against Your Records
Box 1 shows the total gross distribution received in 2010, and you must verify that this amount matches your bank statements or plan statements to ensure accuracy. The amount shown should not reflect withholding reductions if a direct rollover occurred, and transfers or recharacterizations appear with Code N for same-year transactions or Code R for prior-year transactions in box 7.
Determine Taxable Amount When Box 2a is Blank.
You must calculate taxable income yourself if box 2a is blank and the first checkbox in box 2b is marked, indicating taxable amount not determined. For traditional IRA, SEP, or SIMPLE distributions, apply the aggregation rules and your basis found in Publication 590, and for annuity starting dates after 1997 from qualified plans, apply the simplified method using IRS tables in Form 1040 or 1040A instructions.
Check Age 70½ Minimum Distribution Compliance.
You must confirm the distribution satisfies the required minimum distribution rules for 2010 if you received an IRA distribution and are age 70½ or older. The form will show the separate IRA/SEP/SIMPLE checkbox marked when reporting IRA distributions. Failure to withdraw the correct RMD amount triggers a 50% excise tax on the shortfall, which you report separately on Form 5329, along with any other additional taxes that may apply to your retirement account distributions.
Review Distribution Code in Box 7 for Tax Treatment
Identify the distribution code or codes in box 7 to determine proper tax treatment:
- Code 1 or J indicates early distribution under age 59½ with no known exception, which may subject you to an additional 10% tax unless an exception applies.
- Code Q indicates a qualified Roth distribution, which means the amount is tax-free and not reported as income.
- Code L indicates a loan treated as a distribution, requiring you to see Publication 575 for loan-specific taxability rules.
- Code 8 identifies excess contributions plus earnings or excess deferrals taxable in 2010.
- Code P identifies excess contributions plus earnings or excess deferrals taxable in 2009.
- Code D identifies excess contributions plus earnings or excess deferrals taxable in 2008, though this code also applies to annuity payments from nonqualified annuities subject to Net Investment Income Tax.
You report any applicable 10% additional tax on Form 5329.
Reconcile Capital Gain Amount in Box 3
You may be able to elect preferential capital gains treatment on Form 4972 if box 3 shows a capital gain amount and box 7 includes Code A, provided you were born before January 2, 1936, or are a beneficiary of someone born before that date. Do not report this on Schedule D because Form 4972 is the only proper form for this election.
Account for Employee Contributions in Box 5
Box 5 shows employee after-tax contributions, designated Roth account basis, or insurance premiums recovered tax-free, and this amount is not taxable under any circumstances. Note the year entered next to box 10 if the designated Roth account basis is shown, because this indicates the first year contributions were made to that account, and subtract box 5 from box 2a to verify the net taxable amount reconciles properly.
Include Federal Withholding in Box 4 on Your Return
You must report the amount shown in box 4 on the tax withholding line of your Form 1040 or 1040A if box 4 shows federal income tax withheld, and attach Copy B of this form to your return when filing. Form W-4P allows you to change withholding or elect not to have tax withheld for distributions in 2011 that are not eligible rollover distributions.
Reconcile State and Local Withholding
State or local income tax was withheld if boxes 10, 12, 13, or 15 show amounts. Report state tax withheld in box 10 on your state return and report local tax withheld in box 13 on your local return if required, and verify that the state or locality name and payer's state number in boxes 11 and 14 match your residence or distribution location.
Determine Net Unrealized Appreciation Tax Deferral
Employer securities received in a lump-sum distribution are indicated when box 6 shows net unrealized appreciation and box 7 includes Code A, or box 3 shows capital gain. NUA is deferred from tax until the securities are sold unless you elect to include it in your 2010 income.
This election must be made on Form 4972 or your return, and once made, it becomes irrevocable and cannot be changed in any subsequent tax year. The permanent nature of this election requires careful consideration before reporting the net unrealized appreciation in your current year income.
Year-Specific Updates For 2010
The Tax Increase Prevention and Reconciliation Act of 2005 permitted taxpayers to recognize Roth conversion income ratably in 2011 and 2012 for conversions completed in 2010. This temporary rule applies only to conversions completed in 2010 and cannot be applied to any other tax year.
Complete Form 8606 for each subsequent year 2011 and 2012 to report the split income because no deduction or credit offsets this spread. Box 7 includes Code N specifically for IRA contributions made in 2010 and recharacterized in 2010, while Code R applies to prior-year contributions that are recharacterized in 2010.
Code 8 in box 7 identifies excess contributions plus earnings taxable in 2010. You must distinguish Code 8 from Code P for 2009 excess and Code D for 2008 excess to apply the correct tax treatment and determine whether the 10% excise tax applies under 2010 rules.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
