Surprise! IRS Sneaks in New Code for Reporting IRA Qualified Charitable Distributions (QCDs)
By Jodie Norquist, CIP, CHSP
Buried within the newly released 2025 Form 1099-R instructions is a reporting change you may have missed, but one that is important to know about if you work with IRAs. Don’t let it take you by surprise.
Starting in 2025, the IRS has introduced a new reporting code: code Y, Qualified charitable distribution (QCD) claimed by taxpayer under section 408(d)(8), to report in Box 7 of Form 1099-R when an IRA owner or beneficiary age 70½ or older takes a qualified charitable distribution (QCD).
Previously, no special code was needed to report a QCD. Instead, financial organizations were required to use code 7, Normal distribution, to report QCDs taken from Traditional, SEP, and SIMPLE IRAs, or code 4, Death, to report QCDs taken from inherited IRAs. For Roth IRAs, financial organizations previously used code Q, Qualified distribution from a Roth IRA, or code T, Roth IRA distribution, exception applies. Taxpayers were then responsible for reporting the QCD amount as an exclusion from their taxable income on IRS Form 1040, U.S. Individual Income Tax Return.
What is a QCD?
IRA owners and beneficiaries age 70½ and older may use their IRAs to donate money to one or more qualified charitable organizations without paying taxes on the distribution. It’s a win for both the account owner and the charity. IRA owners age 73 or older or beneficiaries who may be required to take required minimum distributions (RMDs) each year can decide to send those payments directly to their favorite qualified charitable organization. QCDs allow taxpayers to receive a more generous tax benefit than is available for other deductible charitable contributions, thus perhaps enabling taxpayers to donate more to their favorite charity than they may otherwise be able to.
QCDs are limited to an annual limit of $108,000 for 2025 (indexed for cost-of-living adjustments). Married couples who file a joint income tax return may each make QCDs up to the $108,000 annual limit.
IRA owners and beneficiaries may take QCDs from their Traditional and Roth IRAs and from a SEP plan or a SIMPLE IRA if the plan is not “ongoing.” According to IRS Notice 2007-7, a plan is considered ongoing if an employer contribution is made for the plan year ending with or within the individual’s taxable year for which the QCD tax treatment is sought.
To learn more about QCDs, including the reporting responsibilities of financial organizations and their clients, check out our previous Link story.
What are the Current 2025 QCD Reporting Requirements?
The draft 2025 Instructions for Forms 1099-R and 5498, released on April 16, 2025, indicate that financial organizations should enter codes Y and 7 to report a QCD taken from a “non-inherited (normal distribution) IRA,” and codes Y and 4 to report a QCD taken from an “inherited (death distribution) IRA.”
The draft instructions also indicate that financial organizations should use codes Y and K to report “traditional IRA assets not having a readily available FMV that are either from non-inherited or inherited IRAs”.
At the time of this writing, the instructions did not mention how to report a QCD from a Roth IRA. The IRS may provide additional information when the final version of the instructions is released.
