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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10506
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Would you have any knowledge on 1099R code 3 and 7? I become

Customer Question

Hi, would you have any knowledge on 1099R code 3 and 7? I become disabled in 2003 and started receiving disability pension from my employee. Later learned that the employer place code 7 in box 7 instead of code 3. Have I been taxed differently because of the error. If so, please explain how and show me the percentage breakdown. What is code 3 % and what is code 7 percentage? Thanks
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Submitted: 7 months ago.
Category: Tax
Expert:  Lane replied 7 months ago.

Hi,

...

Yes code 3 means that the 10% tax (not regular income tax that occurrs on ALL IRA distributions), but rather the ADDITIONAL 10% penalty tax, is waived.

...

Code 7 would imply that the additional 10% is NOT waived (if it otherwise applies, becasue you are under age 59 and 1/2)

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If you are OVER age 59 and 1/2 then there is no issue.

...

But if you are not, and those codes have been entered in, say, the software by whomever is doing your taxes... the difference would be 10% of the amount of the distribution, on TOP of the regular tax. (again, IF you are under age 59 and 1/2)

Expert:  Lane replied 7 months ago.

So, again, if you are under age 59 and 1/2, normally (even though IRS distributions are ALWAYS taxed) there is an additional 10% early retirement penalty tax applied.

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Being permanently disabled waives that 10% penalty for those that are under age 59 and 1/2 AND disabled. The custodian should have been entering 3 as the code, becasue you are disabled.

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The DIFFERENCE? (for those under age 59 and 1/2 AND disabled) 10% of the amount distributed in extra tax.

Expert:  Lane replied 7 months ago.

If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the faces or stars on your screen, and then clicking “submit")

JustAnswer will not credit me for the work unless you do.

...

Thank you!

Lane

I have a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.

Customer: replied 7 months ago.
Thank you for your response. I am satisfied,
Expert:  Lane replied 7 months ago.

You're very welcome ... Your positive rating … (by using those the stars or faces on your screen, and then clicking “submit”) …is thanks enough!

That’s how we’re credited for the work here

...

Thank you,

Lane