Withholding

[Randy Watson]

I've read that a distribution from a nonqualified plan that is paid to a beneficiary in the year following the participant's death is not subject to income tax withholding. FICA and FUTA were already incurred. Can anyone confirm this? The participant has not been an employee for several years, so 1099-R will be used. Please help.

[jpod]

Under no circumstances would you use a 1099-R. I think the payment is reported on a 1099-Misc. under the beneficiary's name and SSN, and there is no W-2 or withholding (and no SECA tax). This is very adequately covered in the W-2 instructions, the 1099-Misc. instructions, or both. You should check them out.

[Randy Watson]

Under no circumstances would you use a 1099-R. I think the payment is reported on a 1099-Misc. under the beneficiary's name and SSN, and there is no W-2 or withholding (and no SECA tax). This is very adequately covered in the W-2 instructions, the 1099-Misc. instructions, or both. You should check them out.

I'm not sure what to believe now. Under the "Nonqualified plans" heading on the first page of 1099-R it states that you should "report distributions to beneficiaries of deceased plan participants on Form 1099-R." Form 1099-MISC states that "death benefits from qualified and nonqualified deferred compensation plans paid to the estate or beneficiary of a deceased employee are not reportable on Form 1099-MISC but are reportable on Form 1099-R."

[jpod]

Randy: I checked the instructions. You are correct; I was wrong. I apologize.

[Guest TaxedToDeath]

It appears the former reporting requirements are now reversed. The 2008 1099-R instructions may have stated we must report distributions to beneficiaries of deceased plan participants in nonqualified deferred compensation plans on the Form 1099-R, but the 2011 1099-MISC instructions specifically state, "Death benefits from nonqualified deferred compensation plans or section 457 plans paid to the estate or beneficiary of a deceased employee are reportable on Form 1099-MISC. Do not report these death benefits on Form 1099-R." The 2011 1099-R instructions also state that distributions to beneficiaries of deceased nonqualified deferred compensation plan participants are to be reported on Form 1099-MISC. So, just when we think we have it, it changes.