Receiving any 1099 form for the first time can be confusing for a taxpayer, and your tax situation is only likely to get more confusing if you receive a 1099-R. This form reports distributions you received from qualifying retirement accounts, such as traditional and Roth IRAs. It also reports any amount of federal income tax already withheld by your fund manager and provides information on your total post-tax contributions in line 9b. While fund management companies aren't required to report information on line 9b, they may help you determine your tax liability.
Total Employee Contributions
Line 9b reports total employee contributions you made to the fund using calculations determined by using the Internal Revenue Service's simplified method. If you made post-tax contributions to your retirement account, you don't pay income taxes on a portion of the distributions you receive based upon the amount for which you were already taxed. In contrast, if you made contributions to your retirement fund -- or your employer made contributions -- before income taxes were withheld, you owe income taxes on those funds when you access these funds.
If you started receiving distributions after November 8, 1996, you use the IRS's simplified method to determine the amount of the distribution from pretax and post-tax amounts using the Simplified Method Worksheet. Funds that began drawing distributions before that may use the simplified method or the general method, depending on when you began receiving distributions. To determine the amount of tax-free distributions, apply the amount in your Form 1099-R line 9b to line 2 of the Simplified Method Worksheet. This amount is then used in conjunction with the estimated number of distributions you'll receive in your lifetime -- a figure the IRS provides on the worksheet based on your age -- to determine the amount of each distribution you receive tax-free.
Taxable Amount on Form 1099-R
The amount of your distribution that you must pay taxes on is reported in line 2b of your 1099-R, and you should transfer this amount to your Form 1040. While your fund manager may use the amount reported on line 9b to determine the portion of taxable distributions if your fund contains a combination of pre- and post-tax contributions, your total tax liability for the fund represented on the 1099-R is reported on line 2a. If you receive distributions from more than one retirement account, you will receive a 1099-R reporting each distribution's tax liability.
Income Tax Withholding
Some fund management companies withhold estimated income taxes from distributions and make payments to the IRS in your name. If your fund management company does this, it reports the amount of tax withheld on line 4 and line 12, for state income tax withholding. These payments are only estimated payments made using information you provide it on your Form W-4 to determine your estimated tax liability. If your earnings were significantly different than expected and predicted on your W-4, you may owe more taxes on distributions than withheld by your fund management company.