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I have two Forms 1099-R for a deceased relative for whom I'm preparing a final return. Federal tax has been withheld from the 1099-R amounts. Shouldn't they be tax-free?

Retirement account distributions on Form 1099-R, Box 7, Code 4 are still taxable based on Box 2a. These show payment due to death of the account owner. However, the 10% penalty on early distributions isn’t applied as an exception for Code 4 distributions. Include the federal withholding amount reported in Box 4 as an additional withholding

The amounts might be income in respect of a decedent. This type of income was earned by the deceased person before death. However, it wasn't paid until after the person's date of death.

Income in respect of a decedent is taxable to the deceased person in the year received.

Types of income in respect of decedent include:

  • Retirement account distributions
  • Employee compensation
  • Bonuses
  • Benefit plan distributions
  • Partnership income
  • Interest and dividends
  • Gain on sale of property
  • Crops and livestock
  • Installment obligations
  • Royalties

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