Understanding Your 1099-R Tax Form

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Internal Revenue Service tax form 1099-R provides each payee with detailed information on his or her pension income for the previous year.

Most payees receive only one 1099-R tax form each year. However, persons who retired in the current tax year will receive a separate 1099-R tax form for any additional refunds they received, such as a refund of voluntary annuity contributions.

Additionally, retirees who turned age 59½ in the current tax year will receive two 1099-R forms. These retirees will receive a 1099-R form for annuity payments distributed in the calendar year prior to reaching age 59½ with a distribution code 2. They also will receive a separate 1099-R form for annuity payments distributed in the calendar year on or after they reached age 59½ with a distribution code 7.

The following key describes some of the most important components of your 1099-R tax form.

BLOCK 1: (Gross Distribution)

This is the total amount of pension benefits paid to you by the Maryland State Retirement Agency

BLOCK 2A: (Taxable Amount)

This is the taxable amount of your pension benefit. Depending on your retirement date, retirement type and whether you contributed to your plan, you may not be taxed on the total amount of benefits paid to you. If this is the case, the amount shown in this block will differ from the amount in Block 1.

BLOCK 4: (Federal Income Tax Withheld)

This block shows any federal income tax deducted from your monthly retirement payments. To change the amount of federal income tax being withheld, IRS Form W-4P for Federal Tax Withholding.

BLOCK 5: (Employee Contributions)

This is the amount of your contributions that were recovered, tax free, during 2014. The dollar figure in this box does NOT represent the amount of any health insurance premiums withheld from your pension benefit.

BLOCK 7: (Distribution Code(s))

IRS distribution codes are explained on the back of the 1099-R form.

BLOCK 9B: (Total Employee Contributions)

For retirees who received their first pension benefit in the current tax year, this block contains the value of any contributions made during employment that can be recovered tax-free. Only members who retired in the current tax year and made pension contributions will see a value in this block. For members who retired prior to the current tax year, a zero will be printed in the block.

BLOCK 14: (State Income Tax Withheld)

Any Maryland State income tax deducted from your monthly benefit is shown in this block. To change the amount of Maryland state income tax being withheld, complete Form 766.11: Maryland State Tax Withholding Request

BLOCK 19: (Pick-Up Contributions)

This figure applies to members whose employers participated in the State Pick-up Program.

For eligible retirees, Block 19 of the 1099-R form contains the amount of your tax deferred contributions made under the Employer Pick-up Program. This figure is important for Maryland State income tax preparation. 

The Employer Pick-up Program is concerned with the employee pension plan contributions made while working. It provides for the deferral of federal taxes when the contributions are made, but makes them taxable when received in the pension.

Since this program defers only federal taxes at the time the contributions are made, state income taxes were deducted.

Most members participated in the Employer Pick-up Program. Your participation was determined by whether your employer elected to participate and by whether your pension plan required you to make employee contributions

Federal Taxes

Since eligible members did not pay any federal taxes on their pick-up contributions during employment, taxes must be paid during retirement.

You do not need to make any special entries on your federal tax form. The Retirement Agency has included your pickup contributions when computing the taxable amount of your pension for federal tax purposes.

Maryland state taxes

You have already paid Maryland State taxes on the pick-up contributions listed on your 1099-R. To avoid paying taxes twice, you must subtract the pick-up amount from your federal adjusted gross income shown on page 2 of your Maryland tax return (Form 502) as follows:

Enter your pick-up amount on line “r” of Form 502SU. Enter the sum of all subtractions from Form 502SU on line 13 of Form 502. Enter code letter “r” in the code letter box of Form 502. Please attach the Form 502SU to the Form 502. This serves as a subtraction from your income which will reduce your taxable net income on line 20 (Form 502).

The subtraction is limited to the amount of pick-up contribution stated on the 1099-R or the taxable pension, whichever is less. The remainder of the pick-up amount is carried over to next year’s taxes. When the pick-up amount reaches zero, “EP USED” will be printed in the pick-up block on your 1099-R. This usually occurs within a few years after the date of retirement.

Did you retire in the current tax year?

For members who ended active employment and retired in the current tax year, the W-2 form you receive from your former employer will show 1) your annual wages earned prior to retirement and 2) any state pick-up contributions made in the current tax year. This state pick-up amount serves as an addition to state income for the current tax year. Enter this figure on line 3 of your Maryland tax return (Form 502).