Guide to Understand IRS Form 1099-QA

Overview

In 2014, the federal government passed the Achieving a Better Life Experience Act to allow states to create tax-advantaged account programs in support of disabled individuals. These accounts, known as ABLE accounts, allow for tax-free distributions for eligible expenses incurred on behalf of a qualifying account beneficiary, which are reported on IRS Form 1099-QA. This 1099-QA guide will help you understand the filing requirements, purpose and distribution needs for the form.

 

Form 1099-QA – Distributions from ABLE Accounts

The Internal Revenue Service (IRS) uses Form 1099-QA, Distributions from ABLE Accounts, to report distributions taken from an ABLE program during the tax year. These distributions can be used for qualified disability expenses, such as education, housing, transportation, and health care. The state or its agency that maintains the ABLE program is responsible for filing Form 1099-QA with the IRS for each ABLE account from which a distribution was made or which was terminated.

Distributions used for qualified disability expenses are generally not taxable. However, if the funds are used for non-qualified expenses, the earnings portion of the distribution may be subject to income tax and an additional 10% penalty. The recipient of the distribution (the account holder) should keep records of how the funds were used to ensure they can substantiate that the expenses were qualified if questioned by the IRS.

 

What are ABLE Accounts?

An ABLE account is a savings and/ or investment option for people with disabilities (who qualify). It falls under Section 529A of the Internal Revenue Service tax code. The ABLE Act allows a person whose disability began before age 26*, to save money in the ABLE account without affecting most federally funded benefits based on need. The money in the account may be used to pay for qualified disability expenses (QDEs). Any growth in the account from investments is not taxed and does not count as income if the funds are used for QDEs.

 

Who needs the Form 1099-QA Instructions and Details? 

1. Individuals receiving distributions from an ABLE account. 
2. Tax preparers and accountants working on behalf of recipients. 
3. Payers who make distributions from ABLE accounts. 
4. Nonprofit organizations managing charitable ABLE accounts. 
5. Financial institutions involved in ABLE account management. 

 

Who Receives This Form

The 1099-QA form is issued to individuals who receive distributions from an ABLE account. The form is sent to the designated beneficiary, typically the account holder. Financial institutions or plan administrators must provide this document by January 31st of the year following the distribution. It outlines the total amount distributed during the tax year, which is critical for determining tax liability.

 

Distribution Types

Accurate tax reporting requires understanding the types of ABLE account distributions: qualified distributions, nonqualified distributions, and rollovers. Each has distinct tax implications and reporting requirements.

1. Qualified distributions

   • It covers expenses related to the beneficiary’s disability, including education, housing, transportation, and health care. These are tax-free at the federal level.

2. Nonqualified distribution

   • These are the funds used for expenses not meeting the criteria outlined in Internal Revenue Code Section 529A. These are subject to federal income tax on the earnings portion and a 10% additional tax penalty.

3. Rollovers

   • Rollovers transfer funds from one ABLE account to another, either for the same beneficiary or an eligible family member. These are tax-free if completed within 60 days of the distribution and adhere to the annual contribution limit.

 

Information Required to File 1099-QA

It’s important to understand that there can be up to 3 copies of Forms 1099-QA. Here is a breakdown of where all these forms end up:

• Copy A: Internal Revenue Service center
• Copy B: For recipient’s tax records
• Copy C: For the payer

 

The 1099-QA form details all distributions made during the tax year. For instance, Box 1 shows the total distribution amount, while Box 2 specifies the earnings portion. Here’s a list of all the information required to fill

• PAYER’S Name: Name of the individual or organization making the distribution.
• PAYER’S TIN: Tax identification number of the payer.
• RECIPIENT’S Name: Name of the individual receiving the distribution.
• RECIPIENT’S TIN: Tax identification number of the recipient.
• Gross Distribution: Total amount distributed to the recipient.
• Earnings: Earnings part of the distribution.
• Basis: Original contributions to the ABLE account.
• Check Boxes: Indicate specific statuses or actions related to the account.

 

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