State tax notice for unreported 1099-R distributions - help needed!

Just checked my mail and got a notice saying I owe money for my 2022 state taxes because I didn't report taxable distributions on form 1099-R. Looking at my Fidelity account, 2022 is the only year I have a 1099-R form for. I have both a traditional IRA and a 401K through my company that started in 2022. I'm totally confused about what this means or what I'm supposed to have done. I thought everything was handled correctly when I filed. Can someone explain what's happening here and what a 1099-R actually is? Do I really owe more money or is this some kind of mistake?

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18 comments

Ryan Young

•8M

This is pretty common! A 1099-R is the form used to report distributions (withdrawals) from retirement accounts like your IRA or 401k. If you took money out of either account in 2022, Fidelity would have generated this form and sent it to both you and the state tax authority. The notice means that when you filed your state taxes, you didn't include this distribution as income on your state return. States usually tax retirement distributions similarly to how the federal government does. When there's a mismatch between what Fidelity reported to the state and what you reported on your return, you'll get this kind of notice. Did you make any withdrawals from your IRA in 2022? Or did you roll over funds between accounts? Even rollovers generate a 1099-R, though they might not be taxable if done correctly.

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Ryan Young

•8M

Contributions going INTO retirement accounts wouldn't generate a 1099-R. The 1099-R is specifically for money coming OUT of retirement accounts. If there's an amount in Box 1, that represents a distribution of some kind. A few possibilities: Did you perhaps roll over funds from a previous employer's 401k? That would generate a 1099-R even though it might not be taxable. Also, sometimes financial institutions make administrative changes that technically count as distributions even though you didn't actually take money out. Box 7 of your 1099-R should have a code that explains what type of distribution it was.

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Sophia Clark

•8M

I went through something similar last year! I tried figuring it out myself but wound up using https://taxr.ai to help analyze my 1099-R forms and figure out what I missed. Their system reviewed all my tax docs and showed me exactly how the 1099-R should have been reported on my state return. Turns out in my case, I had done a rollover that wasn't properly coded on my tax return, so the state thought I had taken a distribution. Their software spotted it right away and even helped me draft a response letter to the state tax agency. Saved me from having to hire an accountant for something that was actually pretty straightforward once it was explained properly.

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Sophia Clark

•8M

They do analyze the actual state notices along with your tax forms - I uploaded my notice and they explained exactly why there was a discrepancy and what to do about it. It's way more personalized than I expected. It definitely could be something you figure out yourself with enough research, but for me, it was worth having an expert system analyze everything. My notice was about a rollover that was reported correctly federally but not properly coded on my state return. They identified the specific line on my state form where the error occurred, which would have taken me forever to figure out.

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Madison Allen

•8M

I want to apologize for being skeptical about taxr.ai in my comment above. I decided to try it because I got a similar notice about a 1099-R from Vanguard, and honestly it was impressive. Uploaded my docs and within minutes it showed me that I had a rollover that was correctly reported federally but not properly indicated on my state return (common issue apparently). The analysis even pointed to the exact state form line where the rollover should have been reported separately. I was able to fill out the response form they recommended, submitted it to my state tax department, and got the notice canceled. Wish I'd known about this sooner instead of stressing for two weeks!

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Joshua Wood

•8M

If you're still having trouble resolving this with your state tax department, I've found that actually getting through to a human at the state tax office is your best bet. They can often pull up your account and explain exactly what's going on. The problem is most state tax departments are impossible to reach by phone... I spent literally weeks trying to call my state's tax department about a similar issue last year. Eventually I found https://claimyr.com and used their service (there's a demo video at https://youtu.be/_kiP6q8DX5c). They somehow got me connected to an actual state tax agent after I'd wasted hours getting nowhere. The agent walked me through exactly what happened with my 1099-R reporting issue and how to fix it.

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Joshua Wood

•8M

They don't call for you - they basically hold your place in line and then call you when they're about to connect you with an agent. It's like having someone wait in a physical line for you, then texting when they're near the front. It works because they have an automated system that continuously redials and navigates the phone tree until they get through, then they transfer the call to you. Nothing magical about it, just technology handling the frustrating part of waiting on hold and dealing with the phone system. They monitor hold times across tax agencies so they know exactly when to call for the shortest wait times too.

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Emily Parker

•8M

I have to eat my words about Claimyr from my skeptical comment above. After getting nowhere for three weeks with my state tax department about my own 1099-R issue, I reluctantly tried it. Within 90 minutes, I was talking to an actual state tax representative who pulled up my account. Turns out my issue was that I had done a direct rollover from an old 401k to my IRA, but because the 1099-R didn't have the correct code in Box 7, the state computer flagged it as a taxable distribution. The rep immediately saw what happened and helped me submit the proper documentation. Issue resolved in one phone call after weeks of frustration. I honestly couldn't believe it worked.

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Ezra Collins

•8M

Just want to add something important: check Box 7 on your 1099-R form! The code there tells you what kind of distribution it was. If it shows code "G", that's a direct rollover to another retirement plan or IRA and usually isn't taxable. But if your tax software didn't properly report this, the state might think you took a taxable distribution. Also, check if any federal tax was withheld (Box 4). If there was, that's a clue that at least part of the distribution might be taxable. Most importantly - don't ignore the notice! States are very aggressive about collecting tax they think they're owed.

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Ezra Collins

•8M

Code "7" indicates a normal distribution, which is generally fully taxable at both federal and state levels. Unlike code "G" (which indicates a rollover), code "7" distributions don't qualify for tax-free treatment. If you believed you qualified for an exception, you may be thinking of a specific situation like being over 59½ (which exempts you from the early withdrawal penalty but not the income tax), or possibly a qualified disaster distribution. These would still be taxable income even if the 10% penalty was waived.

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Zara Perez

•8M

I successfully disputed a similar situation. The key was getting a corrected 1099-R from the financial institution. In your mom's case, she needs to track down that old employer's 401k administrator - usually a company like Fidelity, Vanguard, etc. Even if the employer is gone, the administrator should still exist. What likely happened is either an administrative change in the plan or they may have forced a distribution if the account was small and inactive for many years (some plans automatically distribute accounts under $5,000 if you're no longer an employee). If she never received the money, they might have sent it to the state as unclaimed property!

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