Postal Service Retiree

[Margaret CPA in OH]

Client is a postal service retiree. 1099R shows gross distribution of $32,148, taxable amount unknown BUT 9b Total employee contributions of $35987 AND box 5 Employee contributions/insurance premiums of $3404. I've never seen a 1099R with combined employee contributions shown as greater than the distribution let alone the taxable amount as unknown.

Anyone out there with Office of Personnel Management Retirement Operations experience or have a client with a similar 1099R? Also, it shows state income tax withheld but no Box 11, state id. I think I can't efile without that.

[fmaderjr]

I believe that the $35,987 is his total contributions that must be recovered over his life expectancy using the simplified method. I think the $3404 is probably health insurance.

I have a civil service retiree with a 1099-R like that and several years ago & the figure equivalent to the $3404 was actually called health insurance instead of Employee contributions/insurance premiums.

I have a postal retiree who retired 5 years or so ago as well and the 1099 actually computes the taxable amount. Did your client retire quite a while ago?

[Margaret CPA in OH]

Thanks, fmaderjr, for responding. This client is in his 70's so I think a long time retiree. Whether this is taxable makes, as you can imagine, a significant difference in his tax liability, a swing of $8000. It is believable that the $3404 is health insurance as the box states it could be insurance premiums.

If the $35,987 is what he must recover over his life, this year alone would nearly match that. I still don't know what to do, though, and he is incompetent. His guardian brought the documents for return prep. There was $2600 federal tax withheld so maybe it is all taxable. All I can find is that the amount in 9b is used to compute the taxable part but no clue as to how to do that.

[windmill]

Thanks, fmaderjr, for responding. This client is in his 70's so I think a long time retiree. Whether this is taxable makes, as you can imagine, a significant difference in his tax liability, a swing of $8000. It is believable that the $3404 is health insurance as the box states it could be insurance premiums.

If the $35,987 is what he must recover over his life, this year alone would nearly match that. I still don't know what to do, though, and he is incompetent. His guardian brought the documents for return prep. There was $2600 federal tax withheld so maybe it is all taxable. All I can find is that the amount in 9b is used to compute the taxable part but no clue as to how to do that.

I wish I had more time to reply, but it is the season...on the 1099R input page, scroll down until you get to the pension/annuity area and start answering and filling in the blanks...use the simplied method...several questions you'll have to ask the client, but this should get you started, while on that page, go to support and get the publication that deals with this....

[cpabsd]

You can actually calculate the number yourself or allow ATX to figure the number. When I have one who I'm not sure, I go to the Pub 575 and calculate with the information I have. I do assume they were not taxed on a portion for each year. Usually, if you ask, the client can tell you when they retired - you will need that exact date. In future years, ATX will figure the amounts once you tellthe software how much has been excluded in prior years. On the bottom of the 1099R worksheet, there are boxes to fill in to calculate simplified method.

Hope this helps.

[Margaret CPA in OH]

Windmill and cpabsd, thanks so much! Honestly, in all these years I have never had one of these (lucky, I guess!) and didn't even know about the bottom part of the input. I will have to ask the guardian and hope she knows. The client is an alcoholic but now in a nursing home so maybe some answers can be obtained. Thanks again!

[TAXBILLY]

http://www.imrf.org/pubs/tax_letters/TL10.pdf

Find out when he actually did retire and see if he has his 2007 return. If you find he is eligible to recover part of his cost each year according to the rules and he didn't you can still save him some money by amending his 2007 return by April 15th. Then after the season you can amend 2008 & 2009.

taxbilly

[kcjenkins]

Just to throw in the 'other side' of the issue, if he's that old he may well have retired back when they had the option to take all their distribution as non-taxable, until they got back 'their contributions'. Usually got it back in the first three years, after which it is all taxable each following year. And those are the ones that say 'taxable amount not determined' because each person had a choice. Today, they have no longer got that choice, but 'back in the day', it was a popular option.

[Margaret CPA in OH]

Thanks, all. I just checked Pub. 721 and have more questions. The last previous return he actually filed was for 2005. 2007-2009 were filed from transcripts so not a lot of help there. I have emailed the attorney to ask for his intercession with the Office of Personnel Management as they refuse to talk with the guardian and the client is, as stated, an alcoholic with not a lot of memory these days.

We'll see what happens. It turns out he has some resources with this annuity, another pension and an IRA but the nursing home is eating it up quickly. No medicare you know.

Thanks again - wondering why I am getting slammed with these things now :wacko:

[kcjenkins]

You may want to extend it so you have time to find out more. If you don't, my advice is to assume it is all taxable, since almost everyone I have ever seen that retired that far back took the option to pay no tax until their contribution was used up.

[Margaret CPA in OH]

I am definitely leaning to extension. The problem is that the guardian said it is a real hassle getting money timely to pay and this will definitely owe. I emailed the attorney directly to see if it could be expedited.

I did mention that this could have been handled easier earlier in the year but this is the same woman whose husband is the sued and injured contractor. She's had her hands full. In fact she was going to try to do these things herself because they have so little money. The attorney told her to have the father-in-law's return prepared by a pro because it would be paid from his funds, not hers. Sigh....

[Cathy]

Thanks, all. I just checked Pub. 721 and have more questions. The last previous return he actually filed was for 2005. 2007-2009 were filed from transcripts so not a lot of help there. I have emailed the attorney to ask for his intercession with the Office of Personnel Management as they refuse to talk with the guardian and the client is, as stated, an alcoholic with not a lot of memory these days.

We'll see what happens. It turns out he has some resources with this annuity, another pension and an IRA but the nursing home is eating it up quickly. No medicare you know.

Thanks again - wondering why I am getting slammed with these things now

Margaret,

Don't forget to itemize the nursing home monthly payment as medical expenses also with medicare, supplemental insurances, out of pocket meds, etc.... Nursing home @ 12 months generally means no taxes are due (but not always, of course).

Cathy

[Margaret CPA in OH]

I received LOTS of information today that should resolve just about everything and make tax go away. Guardian kept saying he was in a home with some assistance. Today I found out it is skilled nursing so, yes, all deductible. I've also put her on task to list supplies and prescriptions but not otc.

She also found old returns from 2000-2004 with HOORAY the worksheets with the simplified method utilized. This may have been before he was completely lost to alcohol. Anyway, it is a HUGE help. Unfortunately it looks as if about 75-80% is taxable but that is better than 100% and the medical should take care of a lot.

Thanks again for all the help and hints. I'll know a lot more the next time it shows up!