The 1099-R Form is primarily used to report distributions from a retirement account holder or trustee of an IRS-approved account (or an account qualified for special tax treatment).

IRS approved accounts are: pensions, annuities, retirement or profit sharing plans, IRAs, and the like.

If you have a qualified retirement account (or several such accounts), then you surely receive at least one Form 1099-R each year from your bank, mutual fund or retirement plan. As a taxpayer, you are required to declare income or distribution from retirement accounts even if un-taxable or partially taxable, and figure out how much you owe in taxes for those distributions.

Of the many boxes with information on a 1099-R, here are the ones relevant to you as a taxpayer:

• Box 1 shows the gross value of the distribution you received;
  

• Box 2a contains the value of the portion of the distribution that is subject to income tax;
  

• Box 4 shows the amount of federal income tax withheld from your distribution;
  

Ordinarily, funds in qualified plans are exempt from taxation when deposited, but taxed when withdrawn. The amount already taxed is distributed without being taxed again.

You need to report distributions received from IRAs on line 15a of your Form 1040 and the total taxable amount on line 15b.

Distributions you received from pensions and annuities must be reported on line 16a and the total taxable amount of the pensions and annuities on line 16b.

Federal income tax withheld from all distributions is reported on line 61 of your Form 1040.

Rollover contributions, even though not considered taxable income, must be also reported to the IRS.

Amounts you may receive from military retirement pay and any disability payments are regarded as taxable income as well.

While qualified retirement accounts are optional, Social Security is not an optional plan. If you earn income in the United States, then you are required to pay Social Security tax.

The Federal Insurance Contributions Act (FICA) imposes a SS withholding tax of 6.2% of the gross wage amount, up to but not exceeding the SS wage base ($106,800 for 2010 and 2011). The same 6.2% tax is imposed on employers.

For 2011, the employee’s contribution was reduced to 4.2%, while the employer’s portion remained the same. To qualify for Social Security retirement benefits you have to earn enough SS credits by working and paying SS taxes for at least 10 years (40 credits), and to reach a certain age according to the Social Security Administration age rules.

Contributions you make provide retirement benefits but also insurance in the event you become disabled and they may as well cover your adult child if disabled before the age of 22. Also, your spouse and children can receive SS survivor benefits after you die.

SS benefits are taxed depending on your total income from all sources.

If you receive SS benefits then you also receive a Form SSA-1099 which shows the total amount of your benefits for a year. If SS benefits are your only income, your benefits are not taxable and you probably don’t even need to file an income tax return. If you have income from other sources, too, your benefits may be taxed depending on your provisional income and the base amount for your filing status.

For 2010 the base amount if single is $25,000 plus an additional amount of $34,000; if married filing jointly the base amount is $32,000 and the additional amount is the same.

Your provisional income is your total income (including tax-exempt income), plus half of your SS benefits.

If your provisional income is below the base amount, then your SS benefits are not taxable.

If your provisional income is between the base and additional amounts, half of your SS benefits are taxed.

If your provisional income is over the additional amount, then $4,500 if single and $6,000 if married filing jointly plus 85% of the SS benefits are taxed.

The taxable portion of your SS benefits cannot exceed 85% of your total benefits.

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