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- Answers to Common 1099 Questions
Why am I receiving a Form 1099 from Northwestern Mutual?
The Internal Revenue Service (IRS) and the Internal Revenue Code (IRC) require Northwestern Mutual to report certain distributions received from life insurance and annuity contracts, and interest earned. The IRS requires that we report this information on a Form 1099 to both the taxpayer and the IRS. Some common examples of taxable income Northwestern Mutual is required to report include:
Form 1099-INT – Interest earned from a Billing/Payment Account, interest earned on dividends that are left to accumulate (i.e. Accumulated Dividends), interest income plans, interest earned on death proceeds after the date of death, but prior to the proceeds being paid, and interest earned on Access Fund Accounts; if the amount of the interest is at least $10.00.
Form 1099-R, Distributions From Pensions, Annuities, ... Insurance Contracts, etc. - Full and partial distributions and certain dividend payments from life insurance and annuity contracts. Note: Certain tax-free exchanges are also reportable on Form 1099-R for informational purposes.
Can Northwestern Mutual advise me on tax matters?
No, Northwestern Mutual cannot provide tax advice as tax laws are complex and circumstances can vary greatly. This FAQ provides answers to common questions about the Forms 1099 and what is reported on them. For tax advice you should consult with your tax advisor. For example, if you received a 1099-R indicating “taxable amount not determined” you may want to discuss with a tax advisor to determine the taxable portion. You may find helpful information on the Internal Revenue Service site including IRS Publication 17, which provides information on a variety of topics and is searchable.
This contract has multiple owners, why was only one 1099 issued?
Northwestern Mutual records that a contract has multiple owners, but we do not have knowledge of the arrangement among the owners of the contract. The IRS specifies that for multiple owners, the reporting company may report to the first owner of record to fulfill its reporting obligation. The first owner of record, in turn, can divide and report the income to the other owners (referred to as “nominees”) on separate Forms 1099 based on their respective ownership interests. If you need to nominate additional owners you may want to consult with your tax advisor or to refer to General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G).
Can I download my Northwestern Mutual Form 1099 information directly into my tax preparation software?
Currently, Northwestern Mutual does not provide this service for life insurance or annuity products.
Where do I report the interest income from the Form 1099-INT?
Generally, interest income reported on Form 1099-INT is reported under the category of “taxable interest” on line 2 of the 2015 Form 1040EZ or line 8a on the 2015 Forms 1040A and 1040.
I received a Form 1099-INT as beneficiary of a life insurance contract. I thought death benefits were tax-free. Why did I receive a Form 1099-INT?
While the death benefits from a life insurance contract are generally tax-free, interest may be paid from the date of death until the claim is settled. The IRS requires that we report the interest you earned on Form 1099-INT.
Where do I report the taxable gain from the Form 1099-R on my federal income tax return?
If you receive income that is reported on Form 1099-R you cannot use Form 1040EZ. Generally, distributions from life insurance and annuity contracts are reported under the category of “pensions and annuities” on lines 12a and 12b on the 2015 Form 1040A (11a and 11b if an IRA distribution) or lines 16a and 16b on 2015 Form 1040 (15a and 15b if an IRA distribution).
How should the taxable gain on Form 1099-R be reported -- ordinary income or capital gains?
Generally, the gain reported on the full or partial distribution of a life insurance or annuity contract is considered ordinary income. There are some situations in which the proceeds are treated as capital gain, e.g. the life insurance contract was sold by an owner to another party. If you feel your transaction may qualify for capital gain treatment you should consult with your tax advisor.
How is the taxable amount reported on the Form 1099-R determined for a life insurance contract?
For any part of a transaction to be taxable, the contract must first have a gain. A life insurance contract has a gain when the gross cash value exceeds the cost basis (generally premiums paid less adjustments) of the contract.
Generally, when a taxpayer takes a distribution from a life insurance contract the IRC allows the taxpayer to recover the cost basis before any gain is withdrawn, but there are some exceptions. Distributions (including loans) from life insurance contracts classified as Modified Endowment Contracts under the IRC are taxed gain-out-first. Also, distributions from a contract within the first 15 contract years may be subject to gain-out-first taxation depending on the size of the withdrawal and other factors.
There was a loan on my life insurance contract when it was surrendered/lapsed. Why is the gross distribution on the Form 1099-R greater than the amount I received at that time?
The IRS requires that if a loan is outstanding when a life insurance contract is surrendered or lapses, the taxable amount reported is generally determined by comparing the gross cash value of the contract to the remaining cost basis. The transaction is reported as if the gross cash value were distributed at the time of the surrender or lapse and then used to pay off the loan; the remaining value, if any, is distributed to the contract owner.
I exchanged my life insurance contract for another life insurance contract. Why did I receive a Form 1099-R (or possibly two Forms 1099-R)?
The IRC allows certain exchanges (section 1035 tax-free exchanges), to occur without generating taxable income even though one contract is surrendered for another.
- If you exchanged your Northwestern Mutual contract for one with a different company, and the exchange qualified as an IRC section 1035 tax-free exchange, a Form 1099-R was generated showing a Distribution Code of “6” in Box 7. This provides the cost basis transferred (amount in Box 5) to your new contract as part of the exchange. No taxable amount is reported in Box 2.
- If you received two Forms 1099-R for the same contract on the exchange from Northwestern Mutual to another company, the exchange was not entirely tax-free. One Form 1099-R will report the amount of taxable income generated from the exchange (Distribution Code of “7” in Box 7), which occurs if you received cash or an outstanding loan was extinguished as part of the exchange. The other Form 1099-R reports the cost basis transferred (Distribution Code of “6” in Box 7) to the new company. If you exchanged one Northwestern Mutual contract for another Northwestern Mutual contract under IRC section 1035, we do not send a 1099-R with a Distribution Code of “6”as Northwestern Mutual tracks the cost basis internally.
- If your contract did not qualify for the exchange, the surrender was taxable to the extent of the gain and reported on Form 1099-R with a Distribution Code of “7” in Box 7.
I surrendered multiple life insurance or annuity contracts. Why did I only receive one Form 1099-R?
The IRS allows for consolidating information from multiple contracts on one form, if the information is similar. As a mutual insurance company that is owned by the policyowners, we take advantage of this opportunity to reduce costs. We do include a breakdown by contract on the page following the Form 1099-R.
I received a Form 1099-R reporting all or part of my annual dividend on my life insurance or annuity contract as taxable. Why?
Generally, for life insurance, the IRC allows the taxpayer to recover the cost basis of the contract before anything is taxable. If the cost basis was recovered through previous withdrawals, then subsequent dividends that are paid in cash, applied to a contract loan, or deposited into an Billing/Payment Account are reported as taxable income. Dividends from an annuity are fully taxable.
My contract dividend was reported as taxable; shouldn’t that dividend have been reported on Form 1099-DIV?
No, per the IRS instructions, taxable dividend distributions from life insurance and annuity contracts are reported on Form 1099-R - Distributions From Pensions, Annuities, ... Insurance Contracts, etc. The Form 1099-DIV is generally used for dividends paid on corporate stock.
I received a Form 1099-R with a Distribution Code of “1” in Box 7 indicating that I am subject to a penalty tax because at the time of the distribution I was younger than age 59 ½. While I was younger than 59 ½, I was also disabled and should qualify for an exception under IRC section 72. Can this Form 1099-R be corrected?
While you may qualify for the disability exception, the definition of disability can vary and to qualify you must meet the IRS definition of disability. Northwestern Mutual is not in the position to make the determination of whether you qualify under the IRS definition. You should consult with a tax advisor regarding claiming the exception on your federal tax return.
What should I do if I think some of the information on my 1099-INT/1099-R is incorrect?
Information believed to be incorrect:
- Social Security Number or Taxpayer Identification Number
- Your tax form was submitted to the state of your secondary residence, rather than your resident state.
Call the telephone number on the upper right-hand corner of the Instructions for Recipient page that was sent along with your 1099.
Information believed to be incorrect:
- Dollar amounts
- Distribution Code
If the information relates to an amount or distribution code, you can call the number on the Instructions for Recipient page as well. However, prior to doing so, please consider:
In some instances the information on the 1099 may be combined from multiple policies/contracts or transactions and may account for an apparent discrepancy—consider all of the transactions that were completed during the tax year.
The reporting and determination of taxable income from life insurance policy and annuity contract is governed by Internal Revenue Code, and not a contractual stipulation on the part of Northwestern Mutual. Northwestern Mutual is required by law to report certain taxable transactions from life insurance policies and annuity contracts.
There may be instances where Northwestern Mutual is required to report a transaction as taxable in a certain manner, but for reasons not reflected in Northwestern Mutual’s records, the distribution may qualify for different tax treatment. In these situations you may need to provide additional information to the Internal Revenue Service (not Northwestern Mutual) to support your position regarding the amount of income that is taxable. Northwestern Mutual cannot determine the impact of transactions that are not fully reflected in our records. You should seek tax advice from a tax advisor.
This FAQ is not intended to be tax advice and cannot be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law and you are advised to seek tax advice based upon your own particular circumstances from an independent tax advisor.
- Learn About an Access Fund
A Northwestern Mutual Access Fund is a safe, interest-bearing account opened in your name from the proceeds of a death claim. It is provided at no cost to you.
- Interest begins the day the account opens and continues to accrue until the account closes.
- Your Access Fund checkbook will arrive promptly upon approval of your claim, and you can begin writing checks the same day it arrives.
- While there is no minimum rate, you will earn a competitive short-term interest rate on your account balance in the Access Fund.
It couldn't be easier or more convenient. You can take as much time as you need to evaluate your financial needs, while still having full and immediate access to your funds.
- Interest begins the day the account opens and continues to accrue until the account closes.
- Request Technical Support
Telephone assistance: 800-635-8855
Hours of service: 7:00 AM to 6:00 PM CT, Monday through Friday
- Obtain ID
- Password assistance
For your security:
- After three invalid login attempts your ID will be disabled. To reinstate your ID, call the Northwestern Mutual Access Fund Service Center.
- After approximately 30 minutes of inactivity, you will automatically be logged off.
Contact Northwestern Mutual
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