New reporting requirement for Qualified Charitable Distributions: Code Y required in Box 7 of IRS Form 1099-R

Overview

The Internal Revenue Service (IRS) has introduced a new requirement for reporting Qualified Charitable Distributions (QCDs) on IRS Form 1099-R. Effective for distributions made on or after January 1, 2025, individual retirement account (IRA) custodians and trustees must now include Code Y in Box 7 of Form 1099-R when reporting a distribution that qualifies as a QCD.

This change is intended to enhance the accuracy of QCD reporting, streamline processing, and provide clearer documentation to both the IRS and the taxpayer.

Background

Prior to this change, QCDs were generally reported using code 7 (normal) or code 4 (death), and the IRA owner or beneficiary was responsible for indicating the QCD exclusion on their tax return. The addition of Code Y now allows for direct identification of QCDs on Form 1099-R.

New reporting requirement

Beginning with 2025 reporting, Code Y must be used in Box 7 of Form 1099-R, in combination with code 7 or 4, as appropriate. Examples include:

• Code 7Y – Normal distribution that qualifies as a QCD.
• Code 4Y – Death distribution that qualifies as a QCD.

No changes to Boxes 1 or 2a:

• The total distribution (including the QCD amount) is still reported in Box 1, Gross distribution.
• The amount reported in Box 2a, Taxable amount, continues to follow standard reporting requirements, with the QCD amount entered, keeping in mind it is the responsibility of the IRA owner or beneficiary to claim exemption from tax on their tax return.

Procedural requirements for QCDs

To ensure proper processing and reporting of a QCD, IRA custodians and trustees must observe the following procedural steps:

1. Direct payment to the charitable organization

• The distribution must be made directly from the IRA to the eligible charity.
• Checks must be made payable to the charity—not to the IRA owner.
• If a check is mailed to the IRA owner to deliver to the charity, it must still be payable to the organization.

2. Eligible charitable organizations

• The recipient must be a 501(c)(3) organization that is otherwise eligible to receive tax-deductible contributions.

3. Age and limit requirements

• The IRA owner or beneficiary must be age 70½ or older at the time of the distribution.
• The annual limit for QCDs is $108,000 per individual, indexed for inflation in 2025.

4. Timing

• The QCD must be processed by December 31 of the applicable tax year to be considered for that year.
• IRA owners and beneficiaries should allow sufficient time for their IRA custodian or trustee to properly administer the distribution by December 31.

Conclusion

With the introduction of Code Y on IRS Form 1099-R, IRA custodians and trustees should review and update both their data systems and internal procedures to support this change. Proper handling of QCDs—including direct payment to the charity and timely processing—ensures compliance with IRS requirements and provides an added layer of support to IRA owners and beneficiaries who take advantage of this provision. For additional guidance, see IRS Publication 590-B or the Instructions for Forms 1099-R and 5498.