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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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The office of personnel management retirement services program

Resolved Question:

The office of personnel management retirement services program in 2006 over paid me for my first year of disability retirement. In 2007 they started to deduct from gross annuity paid and inform me that they will no longer deduct federal income tax from annuity. My statement from Annuity paid. Gross $27116.15, deduct health in $3839.84 income tax withheld 498.00, my net pay was 10376.00.What form do I use to deduct the overpayment and do I use schedule A
Submitted: 5 years ago.
Category: Tax
Expert:  Ed Johnson replied 5 years ago.

 

Dear athena,

 

As I understand your situaion:

 

1. You were overpaid by the OPM retirment in 2006 for the first year of disabiltiy.

2. In 2007, they deducted from the gross anntiy paid and said they were no longer decuting federal income tax.

3. Your state for annutiy paid is:

 

Gross 27,116.15

- health 3839.84.

- income tax withheld 498

net 10376.00

 

Help me out here.

 

I do not see the numbers adding up.

 

Did you receive a form 1099 for 2006?

 

Did you receive a form 1099 for 2007?

 

 

Customer: replied 5 years ago.

1099-R for 2006 was-Gross 15,568 and Federal withheld $2,176. Also that year I had a w-2 for $37,472 and a social security benefits of $5,478.

 

 

1099-R for 2007 is -Gross 27,116.15 with federal withheld $498.00 and health ins $3,839.84, in the Original contributions box 8,955.

 

In 2007 my income as follow $22,644 in social secuity benefits and my net annuity paid to me was $864.69 per month that come to $10,376. I am under 55 year old

Thank you

Expert:  Ed Johnson replied 5 years ago.

Dear Athena,

 

Ok so now clarify for me this: you mentioned an overpaid annuity in the first year. But that would have had taxes taken out. AND you would have reported the same and received any refund of over paid taxes.

 

So you should not have to report an overpayment if all of these incomes are reported correctly.

 

If the retirment services overpaid you, then they can take the overpayment back, and issue a corrected 1099 or W corrected W-2.

 

so I need for you to explain what you mean about reporting the overpayment.

 

With regard to annuities, they can withhold taxes on a lumpsum basis during one year of the plan, and there after not.

 

So I need to know why you think you need to report an overpayment?

Customer: replied 5 years ago.

For 2007 my gross $27,116.15 and my net was monies actual got was $10,376 and they withheld $3,839.84 and federal withheld.. $498.00 I have 12,402.31 left. I am trying to understand how can I put on line 7 of my 1040 the gross of 27,116.15., and is the 12,402.31 my taxable income even if it is disability income level (3). I quess I am asking

how do I report this income? Last year I reported it under line 16a of my 1040, but I had over 2, 000 withheld.

I want a clear understanding going forward.

 

Thank you

Expert:  Ed Johnson replied 5 years ago.

Dear athena,

 

Thank yo so very much for the additional information.

 

This is really making it clear.

 

Here are the rules:

 

1. If it is disability payments received before the minimum retirement age set by the employer it is included in line 7 income.

 

2. If the amounts on the 1099 are considered a corrective distribution then they are reported or included in line 7 income. A corrective distribution would be if you made excess CONTRIBUTIONS, then the annuity would pay them back to you on form 1099. The plan administrator is required to inform you if it is to be included in income

 

3. All other income indicated on a 1099R is to be reported on line 16a or 16b. If it is totally taxable, then all of it goes into line 16 b. If it is not totally taxable, then all of it t is reported in 16a, and the portion that is taxable in included in 16b.

 

This work sheet should be helpful in determining if it is taxable or not:

 

http://www.finance.cch.com/tools/downloads/pension.pdf

 

If you want me to help with this, I need to know the following information

 

 

I need you to take a look at your latest 1099's and tell me what codes appear in the different boxes.

 

how you report this and in some cases if you report it, depends on what is listed in the various boxes of the 1099-R you received.

 

For example:

 

box 1: Gross distribution before taxes are taken out if any.

box 2a: the portion of box one income that is taxable, if any.

box 2b: if it is a total distribution then the box indicating total distribution is checked. a box is checked also if the taxable amount in 2a is not determined.

box 3 would indicate if any of the amount in box 1 included capital gains.

box 4 would indicate how much taxes were taken out. (if any)

box 5: sometimes your contributions would have been listed, but not all ways.

box 6: sometimes but not always any appreciation may be listed.

Box 7: is distribution code. I need to know this code.

box 8: I need to know any codes and amounts listed here.

Box 9a/b: I need to know if anything is in these boxes.

 

It may be better to scan and save it as an image and upload it here for me to look at. (make sure to make a copy first, and then use the copy to scan. blacken out your name and SSN on the copy before scanning)

 

Customer: replied 5 years ago.

Gross 27,116.15

taxable annuity stated-unknown

box 3-none

box 4- 498.00

box 7-3-disability

 

The boxes has health insurance deducted $3,839.84

Retirement Claim no CS

Original contributions- $8,955.00

 

Thank you

Expert:  Ed Johnson replied 5 years ago.

Dear athena,

 

Did I get your age?

 

AND how many years of service did you have at the time of your first disabiltiy payment.

Customer: replied 5 years ago.

I am 52yrs

 

I was given total disabiliy in April of 2006. 2007 is first year of my disabilty

 

I have been in the US Air Force since 22yrs and I went to Boeing Aerospace 1991 after being discharging from USAF.

 

Thank you

Expert:  Ed Johnson replied 5 years ago.

Dear Athena,

 

Thanks for the additional information. This helps a lot. The issue is that your annuity for disability is fully taxable until you reach the age at which you could first fully retire according to the employer rules. for the OPM this is:

 

Based on age and years of service: Generally, the combinations of minimum age and service for retirement are:

  • age 55 and 30 years of service
  • age 60 and 20 years of service
  • age 62 and five years of service

the only confusing part is that even though the years of total federal service exceed 30 years, you are age 52. The fact that they say they will no longer be taking out income tax appears to mean you have met the normal retirement for your combination and years of service. My answer will assume that.

 

NOTE You will have to verity with the OPM if they are treating you as if you had reached normal retirement for your age 52 and total years of service.

 

by the rules, if you are retired on disability in come, and you have not reached the minimum age and years of service for retirement, the total annuity is taxable and you would report the entire amount on line 16a and 16b. Where 16b is the line that appears in the calculation column of form 1040.

 

If you have reached the minimum retirement by years of service and age, then you would have to figure the taxable amount. Because your annuity started after 1998 you have to figure your taxable amount.

 

The full annuity payment is entered on line 16a, and the taxable amount is entered on line 16b.

 

Figure the taxable amount by getting a decimal multiplier or factor. From the chart below. What this means is, you will add your and your wifes age together, and then divide the total by the factor indicated. that will give you a decimal number.

 

Then multiply the annuity payment by the decimal number to get the taxable amount.

 

Factors:

  • Ages Total Not More than 110 - Divide by 410
  • Ages Total More than 110 - Divide by 360
  • Ages Total More than 120 - Divide by 310
  • Ages Total More than 130 - Divide by 260
  • More than 140 - Divide by 210

The formula is:

 

Your age + wifes age / factor X annuity gross appearing in block one of the 1099.

 

Assuming your and your wifes age 104.

 

Her age 52 and your age 52 = 104

 

104/410 = .2536

.2536 X 27116 = 6876.62 is the taxable amount of the annuity.

 

so, assuming you have reached the minimum retirement age then you would report

27116 on line 16a and 6876.62 on line 16b.

 

REFERENCE: http://www.opm.gov/retire/html/faqs/faq1-taxfree.asp

 

 

 

Customer: replied 5 years ago.

Does it make any differnce that I was given a full disabity retirement, and may mistake

instead of April 06 my papers said Sept 2006.

Expert:  Ed Johnson replied 5 years ago.

Dear Athena,

 

IT does not make difference in the treatment of the payments that you were on full disability retirement. The rule is not based on your percentage of disability, but on when you reach the earliest retirement date based on age and years of service, according to the employer's plan.

 

I am not sure what you meah by your papers said sept 2006 instead of April 06.

 

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and 6 other Tax Specialists are ready to help you
Customer: replied 5 years ago.

I had told you the wrong month of my full retirement disability, it was sept 2006 instead of April 06 which was in the contexts of your question about when I got classified for full disability retirement.

 

Thank You

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