I have 2 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 according to the amounts entered in 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.
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This advice is for general information purposes only and may not apply to you. Every tax situation is different. This is not intended to be legal advice. Taxpayers should consult an H&R Block Tax Professional regarding their individual tax situation.