1099-R Code D: The Letter That Points at the 3.8% Tax

Updated August 26, 2026. Quick answer: code D says the money did not come from a retirement plan. That sounds like a technicality and it is not: the IRS defined code D by naming 6 Code sections and putting the word not in front of them — and they are the same 6 sections, in the same order, that § 1411(c)(5) uses to keep retirement money out of the 3.8% net investment income tax. A D is the payer telling you that exception does not cover this.

What the IRS tells the payer

“D—Annuity payments from nonqualified annuities and distributions from life insurance contracts that may be subject to tax under section 1411.”

IRS, Instructions for Forms 1099-R and 5498 (2026), Table 1, code D

“Use code D for a distribution from any plan or arrangement not described in section 401(a), 403(a), 403(b), 408, 408A, or 457(b).”

IRS, Instructions for Forms 1099-R and 5498 (2026), Table 1, code D

Code D is § 1411(c)(5) with one word changed

Put the two sentences next to each other. This is the exception that keeps retirement distributions out of the investment-income tax:

“The term ‘net investment income’ shall not include any distribution from a plan or arrangement described in section 401(a), 403(a), 403(b), 408, 408A, or 457(b).”

26 U.S.C. § 1411(c)(5)

And this is code D:

“Use code D for a distribution from any plan or arrangement not described in section 401(a), 403(a), 403(b), 408, 408A, or 457(b).”

IRS, Instructions for Forms 1099-R and 5498 (2026), Table 1, code D

The lists are identical, checked character by character before this page was written: 401(a), 403(a), 403(b), 408, 408A, 457(b), in that order, in both. One says described in; the other says not described in. That is the whole difference. Code D is the complement of the retirement-plan exception, which is why it exists at all — the payer is flagging, in one character, that § 1411(c)(5) is not available. And the flag matters because the statute already names this kind of income directly:

“gross income from interest, dividends, annuities, royalties, and rents, other than such income which is derived in the ordinary course of a trade or business not described in paragraph (2)”

26 U.S.C. § 1411(c)(1)(A)(i)

What the flag points at, and where that is already answered

The tax itself:

“In the case of an individual, there is hereby imposed (in addition to any other tax imposed by this subtitle) for each taxable year a tax equal to 3.8 percent of the lesser of— (A) net investment income for such taxable year, or (B) the excess (if any) of— (i) the modified adjusted gross income for such taxable year, over (ii) the threshold amount.”

26 U.S.C. § 1411(a)(1)

It is charged on the lesser of your net investment income and the amount by which your modified adjusted gross income exceeds a threshold, which is why most people who get a code D owe nothing on it. This site already covers how that works in the two places it usually bites: a conversion pushing your MAGI over the line, and the far lower threshold a trust faces. Two things about the threshold itself are worth adding here, because they are in the statute and are usually paraphrased away:

“(1) in the case of a taxpayer making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $250,000, (2) in the case of a married taxpayer (as defined in section 7703) filing a separate return, ½ of the dollar amount determined under paragraph (1), and (3) in any other case, $200,000.”

26 U.S.C. § 1411(b)

First, $125,000 is not printed anywhere in the section. It is half the joint figure by instruction, so it can only move when the joint figure moves. Second, the joint figure does not move: the section as it stands on August 25, 2026 carries no cost-of-living adjustment of any kind. A threshold that never rises is one that more people cross every year without doing anything differently.

Only part of the distribution is even in scope

A code D usually sits on a nonqualified annuity, and a nonqualified annuity was bought with money that was already taxed. The statute splits the payment in two:

“Any amount to which this subsection applies- (A) if received on or after the annuity starting date, shall be included in gross income, or (B) if received before the annuity starting date- (i) shall be included in gross income to the extent allocable to income on the contract, and (ii) shall not be included in gross income to the extent allocable to the investment in the contract.”

26 U.S.C. § 72(e)(2)(B)

The part that is a return of what you put in is not income, so it is not net investment income either, so the 3.8% cannot reach it. What the 3.8% can reach is the earnings — and only then if your modified adjusted gross income has already cleared the threshold above. A code D is a flag, not a bill.

D never arrives alone

Code D is one of the characters that only ever appears beside another. It may be paired with 1, 2, 3, 4, 7, C, and nothing else:

The digit goes first because the instruction says to enter a numeric and an alpha code. Where both characters are letters the instructions fix no order, so none is claimed here.

So the pairs being searched for — 1D, 4D, 7D — are a D carrying an age or a death fact alongside it. Which pairs are legal, and why there are two characters at all, is the companion page; the Box 7 table lists every code; and code 7, code J and code L have pages of their own.

What this page does not tell you

• Whether you owe the tax. That turns on your modified adjusted gross income and your whole year’s investment income, neither of which is on the 1099-R. The form flags the category; the return does the arithmetic.
• How much of the payment is earnings. The split between investment and income comes from the contract’s own records, not from the code.
• The additional tax on an early distribution. That is a different tax with different rules, and the numeric character beside the D is what speaks to it — not the D. This page quotes no rate for it.
• Estates and trusts. § 1411 taxes them on a different basis, which this page does not cover.

Sources

General consumer information, not tax, legal or financial advice. Every quotation above was read from the issuing authority’s own page or PDF on 2026-08-26, and forms and instructions change every year; your own facts decide the outcome, and anything consequential belongs with a preparer or the IRS rather than with a web page.