dkamikawa

I asked Penchecks about the 1099-R and how they report the numbers and this is what they said: We list the gross amount that comes to us. It is not the taxable amount but it is the gross coming to us. In years past we did enter the "Net" but our CFO, who worked for the IRS before coming to us said we should not do it that way so we changed to the current way.

Penchecks bases their withholding off of what is in box 2a. I am looking at a 1099-R which has the following information: box 1 gross distribution- 1663.57 box 2a taxable amount- 1543.57 box 4 federal income tax withheld - 308.71 (not rmd so regular 20% federal withholding) the $120 difference between box 1 and box 2a is based off of a $85 distribution fee + $35 rush processing fee.

jpod, i'm not quite sure what you are saying in your post. I believe you agree with the grossing up of the fee but are just handling it differently. Instead of taking out the distribution amount of $872 and the fee of $125 as a single transaction, you are saying that it would be better to split them up. Am I interpreting this correctly? If you are in control of the preparation of the 1099-R, then it shouldn't matter if you do this separately or as one transaction. You would end up putting $872 as the taxable amount either way I agree that the $125 fee sounds steep.

I'd have to agree with the majority that $872 should be the amount in box 2a(taxable amount). I'd be curious as to arguments about what can be put in box 1 if the fees were handled pre-tax. In the OP's example, $997 should be taken from the participant's account ($872rmd + $125 fee). Our company would normally put $872 into box 1 and box 2a and call it a day. However, I have seen Penchecks put $997 into box 1 and $872 into box 2a. I kind of like how they do it. Comments? Keep in mind how distributions are reported on the 5500 please.