We’ll discuss what the Form 1099-R is and what role a business plays in its filing and reporting.
What is Form 1099-R?
Form 1099-R is an IRS information return that reports specific types of taxable non-employment income that taxpayers may receive outside of their regular pay or salary.
Form 1099-R is used to report the withdrawals or distribution of $10 or more for the following:
- Retirement and profit-sharing plans
- IRAs – individual retirement arrangements
- Annuities, pensions, insurance contracts, survivor income benefit plans
- Disability payments (permanent and total) under life insurance contracts
- Charitable gift annuities
Retirees are the most common recipients of Form 1099-R, but people who are currently employed may also get them for a host of different reasons.
Who Files Form 1099-R?
It is the employing business’s responsibility to file Form 1099-R – though, most often, the 401(k) plan manager or custodian for your organization will be the one who files this form with the IRS and then sends your employee a copy.
Who Receives Form 1099-R & Why?
Any and all of your employees who receive a retirement plan distribution in the amount of $10 or more should receive this form. There are some other situations that warrant a 1099-R as well, so let’s go through some of those.
Those individuals who took out a loan from their employer-sponsored retirement plan, but were unable to pay it off in time, should receive a Form 1099-R as well. They’ll also receive a form if they took out a loan but left your company before they finished paying it off.
There are several reasons an employee could receive a retirement distribution, and those reasons are marked individually on the form. For example, if an employee receives a distribution for more than one reason, you or your retirement plan manager or custodian will need to file a separate form with each appropriate code (there is no way to report multiple codes on a single form).
Here are some distribution codes that are most commonly used:
- Code 1 is used for early distribution with no known exception
- Code 2 is used for early distribution with applied exception
- Code 3 is used for disability retirement benefits
- Code 4 is used in the event of a death
- Code 7 is used for normal distribution
- Code L is used for loans that are treated as distribution
- Code M is used for a qualified plan loan offset
You can see the full set of instructions in this PDF from the IRS.
How to File 1099-R
In this article, we are focusing mostly on the process that a business (or its retirement manager or custodian) must follow to ensure that they are filing Form 1099-R correctly. Here’s how to file Form 1099-R and where each copy must be sent and/or filed:
Copy A is to be filed with the IRS directly by the end of February. That deadline is extended to March 31 if you file the forms electronically.
Copy B goes to the employee to help them organize and prepare their federal income taxes.
Copy C is an extra copy for the employee’s records.
Copy D for the plan custodian’s records.
Copy 2 is for the employee to use when preparing their state, city, or local tax returns if needed.
Copies B, C, and 2 must be sent to the employees by January 31.
It’s important to note if you are filing your business’s 1099-Rs, that the IRS requires you to file electronically if you have 250 or more forms. You can still e-file if you don’t meet the threshold, but if you do, there’s no option for paper filing.
Penalties for Filing Late
If you don’t file your returns by the deadlines above, you may end up with a filing penalty. The penalty also applies if you didn’t include all if the required information or include the correct information. You may also receive a penalty if you filed paper forms when you were supposed to e-file.
These penalties range from $50-$280 per form (with maximum yearly penalties), depending on how late you file, and if the IRS determines that you have deliberately or intentionally missed the deadline or completed the forms incorrectly, you can be charged $550 minimum per form, with no maximum yearly penalty amount.
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