1099-R, Box 5

1099-R, Box 5

Disclaimer: The content is drawn from a variety of sources, including (but not limited to) articles, Internal Revenue Code and Regulations, Court cases, articles, and other unofficial resources. 

There are just some things that are a continuing annoyance. Take, for example, Form 1099-R, box 5, an amount chock full of confusion. What’s really in here? 

This seems to come up every tax season. While preparing training materials, I dug deep into the Form 1099-R instructions to the preparer of this document to figure what “Employee Contributions/Designated Roth Contributions or Insurance Premiums” really means. 

Here’s the nitty gritty (sorry, I’ve been around a long time). 

Box 5 may include any of the following: 

  • Contributions actually made on behalf of the employee over the years under the plan that were required to be included in the income of the employee when contributed (government speak for after-tax contributions) 
  • Contributions made by the employer but considered to have been contributed by the employee under section 72(f) 

Accumulated cost of premiums paid for life insurance protection taxable to the employee in previous years and in the current year under Reg §1.72-16 (cost of current life insurance protection) (only if the life insurance contract itself is distributed) – this has to do with life insurance on the life of an employee as part of a qualified employee plan 

  • Premiums paid on commercial annuities 

For qualified plans (401(k) and 401(a)); 403(b) plans (Tax Sheltered Annuities); and nonqualified annuities (not contained in an IRA or other retirement plan), Box 5 contains employee contributions (after tax) or insurance premiums recovered tax fee during the year. Huh?! Well, what it really means this the part that wasn’t included in Box 2a, the taxable part of the distribution. 

If distributions are from a Roth IRA, then then there will be a separate 1099-R, Box 5 issued to the taxpayer. 

If the distribution is the entire account balance, then Box 5 contains the total employee contributions or insurance premiums that are being recovered tax-free (which means a return of after-tax contributions and not included in Box 2a). Box 5 will not contain any amount previously distributed tax-free. 

The aggravating part: If the issuer can’t figure out the taxable part, they can leave both Box 2a and Box 5 blank! They just check Box 2b (taxable amount not determined) leaving the preparer stranded. 

OK, I do have a summary, if there’s something in Box 5. The tax software will undoubtedly pester you to plug in an amount. So, input the Box 5 amount but the program won’t do anything with it. Its merely an information box – useless if you ask me! 

California Conformity

California Conformity

Disclaimer: The content is drawn from a variety of sources, including (but not limited to) articles, Internal Revenue Code and Regulations, Court cases, articles, and other unofficial resources.

For a long time there have been differences between Federal and California tax law. As the Federal continues to monkey with tax code, the differences become greater and the work to file a California tax return becomes greater. Although tax software programs usually do most of the work, you still need to know what’s going on just to help clients understand their return.

California passed new legislation (AB 91) that has added some conformity features (which may or may not result in a benefit – you’ll be the judge). The bill is titled the “Loophole Closure and Small Business and Working Families Tax Relief Act of 2019” (LCSMWFTRA if you like acronyms).

  • Taxpayers can now use the rules for accounting method. In short, cash basis accounting for inventory purposes is allowed for businesses with gross income up to $25 million
  • Technical termination of partnerships (where a partner dies the partnership is forced to shut down) is now repealed for California partnerships
  • NOL carryover rules now match federal, i.e., carrybacks are no longer allowed
    • California does not conform to the federal 80% rule
  • Like-Kind exchanges completed after 1/10/2019 must include only real property 
    • California does not restrict exchanges only with real estate for MFJ with AGI of $500,000 or more (Single with AGI of $250,000 or more)
  • Excess business losses for noncorporate taxpayers
    • CA has no sunset date; Federal applies only through 2025
    • CA excess carries forward as an excess business loss; federal as NOL
    • CA calculation comes after applying CA passive activity rules; Federal calculation comes after applying Federal passive activity rules
  • Qualified higher education expenses for computers, etc., only applies to post-secondary education (Federal includes K-12 education)
  • COD discharge due to death or disability for CA has no sunset provision; Federal sunset after 2025
  • EITC: The credit is computed with respect to Federal EIC and amounts have increased
  • Young Child Tax Credit of up to $1,000 refundable for taxpayers with $25,000 or less in qualified earned income