Code W on 1099-R

Forum|Forum|6 years ago
June 6, 2019
4 replies
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It says this Code W is a non-taxable distribution from a long term care policy. Box 8 is $321.00 and TurboTax says I owe $32.00 for this 1099-R. That is 10%. Is that a penalty even though it is non-taxable? I never received any money so why should I have to pay?

TurboTax Free Edition Online

Best answer by Jason-Speciner

A 1099-R that you receive with code W in Box 7 should not be included on your tax return. This 1099-R is issued for informational purposes only: showing the amount of a long term care insurance rider charge deducted from a life insurance policy cash value in Box 1, and the corresponding reduction in basis to the policy cash value in Box 8. The instructions included with this 1099-R should have clearly stated this. There is no tax or penalty due.

jasonlovell2467

Jason Speciner , CFP®, EA contradicts your Turbo Tax Answer however TT does not appear to have a way to not pay this tax. John Hancock also says that this should not be taxable for Code W. How do I properly do this in Turbo Tax?

Jason-SpecinerAnswer

SweetieJean

Employee

"If a charge or payment was made against the cash value of an annuity contract or the cash surrender value of a life insurance contract for the purchase of qualified long-term care insurance, an amount will be shown in this box and Code W will be shown in box 7.You need not report these amounts on your tax return."

DianeW777

The amounts are to be ncluded in box 1- charges or payments for qualified long-term care insurance contracts under combined arrangements. Enter Code W in box 7. It was paid out on you behalf regardless if you received the cash. This amount is taxable and subject to the 10% penalty.

Penalty Exceptions. There are very few exceptions to the penalty on Retirement distributions. Allowable exceptions to the 10% early (before age 59-1/2) withdrawal penalty are:

1. Rollovers to another IRA (no tax due)
2. Disability
3. Medical costs exceeding 7-1/2% of AGI
4. Separation from service at age 55 or older (pensions & 401K but not IRAs)
5. Substantially equal periodic payments (SEPP)
6. Military reservist called to active duty
7. Public safety employees separated after age 50
8. IRS levy
9. Education expenses (Only IRAs; not available for withdrawals from 401k plans)
10. Court ordered spousal payments
11. First time home buyer (Only IRAs; not available for withdrawals from 401k plans)
12. Beneficiary
13. Unemployed Medical Insurance
14. Age 59-1/2

Instructions for this code: Use Code W for charges or payments for purchasing qualified long-term care insurance contracts under combined arrangements which are excludable under section 72(e)(11) against the cash value of an annuity contract or the cash surrender value of a life insurance contract.

As you can see this is not one of the exceptions to the penalty.

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dmertz

Employee

A code W Form 1099-R reports amounts that are explicitly excludible from income under Section 72(e)(11) of the tax code. Since this distribution is not taxable, there is no penalty. Section 72(e)(11) of the tax code also treats the distribution from the annuity as a nontaxable distribution of basis (to the extent of the basis in the annuity).

If the code W Form 1099-R reports a taxable amount in box 2a, contact the payer to obtain a corrected Form 1099-R.

Jos2me

I received this 1099-R with Code W. Your explanation is what was stated on the cover letter from Lincoln Life Insurance. My question though is, since my form shows an amount, is that something I can add to my medical expenses? If it is, it will help me pay less tax since I have some other medical expenses that I paid out if pocket. Thank you for any help.

Irene2805

I think you could make a case for deducting the case of the LTC rider if the IRS ever questioned it.

Here is the background info I posted in response to your previous posting:

The IRS states that "[a] qualified long-term care insurance contract is an insurance contract that provides only coverage of qualified long-term care services." Pub. 502 - Medical and Dental Expenses

If the cost of the LTC rider is deducted from the cash value of the life insurance policy you cannot deduct the premiums as a medical expense.

If you have a whole life insurance policy, you can, however, take the position that the cost of the LTC rider is eligible for a deduction as a medical expense. This is because the LTC rider charges on whole life policies are taken before premium dollars are placed in the cash value account. The tax code is unclear regarding this position.

Life insurance premiums are not deductible, so if you decide to take a deduction, the deduction should be for only the costs of the LTC rider.

@Jos2me