Form 1099-R is issued around tax time to report distributions you took during the previous year from a retirement account. Among other things, this form tells you and the IRS how much was withdrawn in total, how much of the distribution was taxable and whether there was any withholding for federal and state income taxes.
For those who gave part or all of their required minimum distribution directly to charity through making a qualified charitable distribution (QCD), this amount is still included in the taxable portion of your total distribution on form 1099-R. As you’ll see, the QCD is included in your gross distribution (box 1) and taxable amount (box 2a); however, the box for “taxable amount not determined” (box 2b) will be checked. Whether you work with a professional tax preparer, use software like TurboTax or prepare your own taxes by hand, it can be easy to forget that the QCD portion of your distribution should not be included in your taxable income on your tax return. It’s important to keep a record of any QCDs made during the year and hold on to the receipts or letters that you receive from the charities confirming receipt of the funds.
Below is a blank version of the 1099-R available on the IRS website.
This is a copy of a 1099-R issued by TD Ameritrade.
In this example, the individual had a $70,000.00 gross (line 1) and taxable distribution (line 2a). The box next to “taxable amount not determined” (line 2b) is checked. Federal income tax of $8,000.00 was withheld (line 4). The distribution was considered a “normal distribution” because the distribution code 7 was used (line 7). What this 1099-R doesn’t tell you is that $20,000 of this individual’s RMD was a QCD, while the remaining $50,000 of the withdrawal was taxable.
You should put the information from the 1099-R on the first page of your tax return (Form 1040) on line 15a and 15b (shown below). In the example, the individual had a total IRA distribution of $70,000. Of this distribution, $20,000 was a QCD. This means that the QCD won’t be included in your taxable income. If you have the option, write “QCD” to the left of box 15b on your tax return. You need to add the $8,000 federal income tax withheld from this IRA distribution to any other federal withholdings from W-2s and/or 1099s for the year on line 64 (page 2) of your tax return.
If you had basis (after-tax contributions) in the Traditional IRA from which you made the QCD and took a regular distribution, you must remember to file IRS Form 8606 Nondeductible IRAs. You must also file this form if you made a QCD from your Roth IRA. While we would not suggest making a QCD from a Roth IRA since the account is after-tax versus pre-tax, you can do that.
By reporting QCD’s correctly on your tax return, you rightfully receive the benefit of income exclusion.