Reconciling Form 1040 and Form 1099-R Data

Abstract

This paper describes how we combine and reconcile data on retirement distributions reported by taxpayers on tax returns with data reported by the payers of those distributions on information returns. With the combined data, we are able to allocate distributions reported on Form 1040 by the detailed distribution codes reported on Form 1099-R. This allows us to, for example: distinguish nontaxable rollovers from nontaxable Roth distributions or nontaxable basis; and distinguish taxable early distributions from taxable normal distributions, taxable Roth conversions, or taxable distributions related to death or disability.

Matching distributions reported on Form 1099-R to those reported on Form 1040 is not straightforward. Not all Form 1099-R distributions are reported as retirement distributions on Form 1040. Payers issuing Form 1099-R may not be able to calculate the portion of a distribution that is taxable, or the taxable amounts they calculate may need to be adjusted by the taxpayer. When taxable amounts are either not reported or require adjustment, we can often calculate taxable distributions using additional forms taxpayers file with their returns, but we cannot do so in all cases.

About 90 percent of retirement distributions were reported on tax returns where either the taxable amounts reported on Form 1040 and Form 1099-R matched or the gross amounts matched. Of the $1.2 trillion in gross distributions reported on Form 1040 in 2010, about 30 percent represented transfers—rollovers, section 1035 exchanges, or Roth conversions—from one retirement account to another. Of the non-transfer taxable distributions (i.e., taxable distributions excluding Roth conversions), 74 percent were normal distributions and 8 percent were penalized distributions.

Note: This research was conducted as part of the Statistics of Income Joint Research Program. Views presented are those of the authors and do not necessarily represent the views of the Internal Revenue Service or the views of the Investment Company Institute or its members.

Keywords: Retirement income, pensions, annuities, IRAs

JEL Classification: H24, J26, J32