A Guide to Understanding IRS Form 1099-R for Employers

If you provide retirement benefits to your workers, your HR may be required to submit IRS Form 1099-R and distribute the form to eligible employees. Form 1099-R is a tax form used by the Internal Revenue Service to record distributions from annuities, profit-sharing schemes, retirement plans, insurance contracts, or pensions. It focuses on passive income and retirement planning in particular.

The 1099-R form is one of several in the 1099 series. These forms are known as "information returns." This is because they are used to record other sorts of income that your employees get in addition to their wages, such as independent consultant revenue, royalties, dividends, or federal subsidies.

In this article, we will learn everything about Form 1099-R, how to file Form 1099-R, what the penalties are for filing Form 1099-R late or incorrectly, and much more. So, keep on reading!

Here are the points covered in this article:

What Is Form 1099-R?
Why may your employees receive a 1099-R?
Who Can File Form 1099-R?
What information does Form 1099-R include?
How to File Form 1099-R?
How to file Form 1099-R electronically.
Penalties for filing Form 1099-R late or incorrectly

Failing to provide timely and correct statements to your employees

Let’s begin!

What Is Form 1099-R?

A 1099-R is an IRS document that reflects possible taxable withdrawals from specific funds, most of which are retirement fund accounts. For payouts of $10 or more, you'll usually get one.

Form 1099-R is used in particular to record payouts or withdrawals from:-

Annuities, pensions, insurance contracts, and survivor income benefit plans are all examples of financial products.
Payments for permanent and complete incapacity under life insurance policies.
Profit-sharing or pension programmes
Rollovers of retirement accounts
Loans secured by pension plans
Distributions from pre-retirement accounts
Individual retirement accounts (IRAs)
Charitable donation annuities

The plan or account custodian who is preparing the 1099-R must complete three copies for each 1099-R issued.

One for the Internal Revenue Service.
One for the distribution's receiver.
One for each appropriate state, municipal, or local tax authority.

Now, you have a basic idea of what is a 1099-R. Next, let's look at why your employees may receive a 1099-R.

Why may your Employees receive a 1099-R?

If any of your workers received a $10 or more retirement plan payout during the previous tax year, your HR needs to file Form 1099-R with the IRS and provide a copy to your employee. In addition, those who took out an employer-sponsored retirement plan loan and did not pay it off on time could expect to receive one as well.

All 1099-R recipients must report the distribution amounts on their federal income tax returns and pay any taxes due. This form reports both taxable and non-taxable income. With some exceptions, all or a portion of the income reported on Form 1099-R is taxable.

Of course, even though some sorts of withdrawals are often deemed non-taxable, your workers must ensure that they follow distribution standards to avoid receiving a tax charge when they submit their returns.

However, any portion of the allocation check that your employee keeps for themselves and does not deposit into a qualified account will be considered a taxable distribution. Additionally, it will be an early one, subject to all of the penalties associated with early withdrawal if they do not qualify for an exception. Among the exceptions are

Medical expenses that exceed 7.5% of your adjusted gross income
Unemployment health insurance
The acquisition of your first house
Expenses for qualified higher education

Next, let's look at who can file form 1099-R.

Who Can File Form 1099-R?

The IRS requires a payee who receives any of the following payouts of $10 or more from the accounts mentioned below to complete a 1099-R form:

Profit-sharing or pension programmes
Any personal retirement account
Annuities, pensions, insurance contracts, and survivor income benefit plans are all examples of financial products.
Payments for permanent and complete incapacity under life insurance policies
Charitable donation annuities

Individuals who get a 1099-R form in error, on the other hand, should contact the plan custodian promptly to address the problem and prevent submitting an inaccurate tax return. 1099-R documents, like most 1099s, must be given to recipients by January 31st of the year following the tax year.

Remember that not all withdrawals from pensions or tax-deferred investments are taxed if you receive a 1099-R. One example is a straight rollover from a 401(k) account to an IRA.

In the following sections, we will look at how we can file form 1099-R. But before that, let's look at what information form 1099-R includes.

What information does Form 1099-R include?

Even though the form takes up half a page, Form 1099-R provides a lot of important information for its receivers, which can be confusing at first.

The identifying information for the payer and the receiver is located on the left side of the form (your employee). The right side displays information on your employee's distributions for the previous tax year. It includes the overall distribution amount, the taxable part of their payment, the kind of distribution they got, and any federal income tax withheld.

Now, let’s look at how to file form 1099-R.

How to File Form 1099-R?

Every 1099-R must be sent many times to the following recipients on your behalf by plan custodians or administrators:

Copy A must be filed with the IRS by the end of February or by March 31st if electronically filed.
Copy B is supplied to the employee to assist them in preparing their federal income taxes. They must also deliver this copy to the IRS with their return if box 4 indicates that federal income taxes were withheld from their payout.
Copy C is a duplicate of your employee's records.
Copy D is for the records of the plan custodian.
If the employee lives in a state where this income is taxed, they will use Copy 2 to prepare their state, municipal, or local tax return.

Each 1099-R form must have copies B, C, and 2 distributed to recipients by January 31st.

In most circumstances, the custodian or administrator of each plan will create Forms 1099-R for any distributions your workers may have received from such plans. If you're unsure if your plan custodian is responsible for completing your workers' 1099-R forms, contact their customer service department. If you conclude that they will not produce any or all of this paperwork, you must either locate a third party to handle this for you or finish this process in-house.

Keep in mind that some third-party suppliers demand early notice if you want them to generate documents for your staff. If you choose to generate your Forms 1099-R in-house and mail paper copies to the IRS, you must also submit Form 1096. Form 1096 deals with the annual summary and transmittal of U.S. information returns.

You can also file a form 1099-R online. Here's how you can do it.

How to file Form 1099-R electronically

If you need to submit 250 or more 1099-Rs for your workers, the IRS requires you to do so online using the IRS Filing Information Returns Electronically (FIRE) portal. However, even if you don't satisfy this condition, you can submit it electronically.

The IRS provides fill-in forms for some electronic tax forms, making them easier to complete because you may do so directly from your browser without the need for extra software. However, this is not the case with Form 1099-R.

Because the IRS does not supply a fill-in form for Copy A, you must-have software that creates a file according to the standards described in Part C of Publication 1220 to file them electronically. It is important to note that they will not accept the following electronic submission types:

Scanned Documents
PDFs
PNGs
TIFs
JPGs
Word Documents
Spreadsheets

First-time electronic filers must register a FIRE Account and apply for a five-digit Transmitter Control Code (TCC) to use the FIRE System.

Now, you know how to file form 1099-R. However, what happens if you file 1099-R late or incorrectly? Let's look at it.

Penalties for filing Form 1099-R late or incorrectly

If you fail to file your taxes on time, you may face a late filing penalty. This penalty, which grows in severity over time, also applies if you did not:

On the return, include all of the relevant information.
Returns on paper that can be read by a machine should be filed in a machine
Please provide accurate information or TINs.
When you were meant to file online, you used paper forms.

The entire list of penalties may be seen below:

When the returns were filed	Penalty	Maximum penalty per year
If you correctly file within 30 days of the due date	$50 per form	$565,000 ($197,500 for small businesses)
If you correctly file more than 30 days after the due date but by August 1	$110 per form	$1,696,000 ($565,000 for small businesses)
If you file after August 1 (or if you do not file the required 1099)	$280 per form	$3,392,000 ($1,130,500 for small businesses)

Suppose the IRS believes that your failure to file complete information returns was due to willful disregard for the deadline or filing requirements. In that case, they can impose a penalty of $550 to perform, with no maximum penalty amount.

Failing to provide timely and correct statements to your employees

Furthermore, you may face an IRS penalty if you fail to furnish your workers with proper statements by the deadline, include all needed information on the form, or submit an information return with correct information.

The penalty system is similar to the one described in the preceding section—fees are charged using the date you furnish the corrected returns as a baseline, and fines for willful violation of IRS standards begin at $560 per employee statement with no maximum penalty.

It's crucial to understand that, while they're applied in the same way, failing to deliver timely and correct statements to your employees is a different penalty from failing to file timely and right information returns with the IRS. This means you might face two distinct fines if you don't give the necessary forms to the IRS and your employees or if you don't send the forms at all.

And that's all you need to know about Form 1099-R. Now let's look at some of the most frequently asked questions about Form 1099-R.

Frequently asked questions

When will the 1099-R become available?

Pacific Life is obligated to transmit the 1099-R by January 31 in the year after the distribution(s), either electronically if the contract owner is registered in e-delivery or by U.S. Mail. As of February 1, the 1099-R is also available on the Pacific Life website.

Is it possible to obtain a 1099-R even if no money was taken during the tax year?

Yes, you can still obtain a 1099-R. Some frequent explanations are as follows:

A fee redemption on a nonqualified contract may have happened, which is represented as a regular distribution.
It's possible that a collateral assignment was executed.
There might have been a change of ownership.
It's possible that a Roth conversion took place.

Why did I receive a 1099-R if I made a 1035(a) tax-free exchange?

Although 1035(a) tax-free trade is tax-free, the IRS requires it to be disclosed. The 1099-R, on the other hand, will display a taxable amount of $0 and a distribution code of "6." (1035 exchange).

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Key Takeaways

We've finally arrived at the end of this article. Let's look at some crucial information we covered in this article.

A 1099-R is an IRS document that reflects potentially taxable withdrawals from specific types of accounts, many of which are retirement savings accounts. For payouts of $10 or more, you'll usually get one.

The IRS requires a payee who receives any of the following payouts of $10 or more from the accounts mentioned below to complete a 1099-R form:

Profit-sharing or pension programmes
Any personal retirement account
Annuities, pensions, insurance contracts, and survivor income benefit plans are all examples of financial products.
Payments for permanent and complete incapacity under life insurance policies
Charitable donation annuities

What information does Form 1099-R include?

The identifying information for the payer and the receiver is located on the left side of the form (your employee). The right side displays information on your employee's distributions for the previous tax year, such as the overall distribution amount, the taxable part of their payment, the kind of distribution they got, and any federal income tax withheld.

How to File Form 1099-R?

Every 1099-R must be sent many times to the following recipients on your behalf by plan custodians or administrators:

Copy A must be filed with the IRS by the end of February or by March 31st if electronically filed.
Copy B is supplied to the employee to assist them in preparing their federal income taxes. They must also deliver this copy to the IRS with their return if box 4 indicates that federal income taxes were withheld from their payout.
Copy C is a duplicate of your employee's records.
Copy D is for the records of the plan custodian.
If the employee lives in a state where this income is taxed, they will use Copy 2 to prepare their state, municipal, or local tax return.

Each 1099-R form must have copies B, C, and 2 distributed to recipients by January 31st.

How to file Form 1099-R electronically

Penalties for filing Form 1099-R late or incorrectly

If you fail to file your taxes on time, you may face a late filing penalty. This penalty, which grows in severity over time, also applies if you did not: