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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15042
Experience:  15years with H & R Block. Divisional leader, Instructor
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Why am I taxed on the gross distribution rather than the

Customer Question

Why am I taxed on the gross distribution rather than the taxable amount?
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Hello

Please clarify the type of account the distribution was from.

Customer: replied 1 year ago.
It is a Jackson National Life Perspective L Series Fixed & Variable Annuity
Expert:  Robin D. replied 1 year ago.

Thank you for the clarification.

When a contract owner begins to receive money from an annuity, distributions taken in excess of the amount invested are subject to taxation at the owner’s ordinary income tax rate.

For non-qualified annuity contracts, the tax rule on withdrawals is “interest and earnings first.” Under this rule, interest and earnings are considered withdrawn first for federal income tax purposes. For example, if someone invested $25,000 in a fixed or variable annuity and the contract is now worth $45,000, the first $20,000 withdrawn is taxable. The remaining $25,000 is not taxed because it is considered a return of principal. Withdrawals are taxed until all interest and earnings are withdrawn; the principal then can be withdrawn without tax.

If your 1099R shows a total distribution and a taxable amount then you should enter on the 1040 line 16a the total but the 1099R taxable amount is on line 16b. 16b amount is only added to income.

When using software (if you are not doing your return on paper) you would need to make sure you entered the correct amounts in the 1099R screen of the software.

Expert:  Robin D. replied 1 year ago.

Were you able to correct your return after you read my answer?