Retirement Retirement Planning

A New IRS Reporting Change Could Leave IRA Owners Unprotected on Charitable Distributions - Here’s What to Do

A change in IRS reporting protocol is raising questions for retirees.

By Paige Cerulli , Edited by Laura Hohenstein

Updated Sept. 19, 2026

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Qualified charitable distributions (QCDs) may help some retirees reduce their tax liability, support a cause they believe in, and save money in retirement. However, the IRS has implemented a QCD reporting change that's generated compliance questions for owners of IRAs who are over age 70.5, and since the change is still new, the tax industry hasn't yet adopted a uniform approach.

Here's what you need to know about the important coding change and what you need to communicate to your tax preparer to ensure your return is accurate.

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How QCDs were traditionally reported

Previously, QCDs were reported in the same way that normal IRA distributions were reported. IRA custodians, the financial institutions that hold and manage your IRA account, reported QCDs on Form 1099-R. There was no special code required, and the owner also marked the exclusion on Form 1040.

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The IRS coding change for QCDs

The IRS introduced Code Y on Form 1099-R for the 2025 tax year to identify distributions that are to be treated as QCDs. Knowing that custodians might need time to update their systems to reflect the change, the use of Code Y currently remains optional.

Code Y is an information reporting code, and it indicates what an IRA custodian believes the distribution represents. However, the use of Code Y doesn't solely determine if a distribution qualifies as a QCD; distributions need to meet specific requirements to qualify, and it's possible that the distribution might later be found not to qualify as a QCD.

The question that Code Y raises

Morningstar contributor Denise Appleby raises a significant question surrounding the use of Code Y: Does Code Y determine whether a distribution is a QCD?

Appleby presents a scenario to illustrate her question. Let's say that a taxpayer is aware of several distributions made during a year, and one of those distributions exceeds the annual limit for QCDs, which is $111,000 per individual in 2026. The taxpayer is aware that, as a result, a distribution doesn't qualify as a QCD because it exceeds the annual limit, but the custodian may not know that information. The custodian may enter Code Y for each of the distributions, but that doesn't necessarily mean that all of the distributions are actually QCDs.

The situation raises additional questions. If a legitimate QCD isn't flagged with Code Y because the IRA custodian didn't know it was a QCD or didn't update their systems, does the IRS expect the owner to self-report the QCD on Form 1040?

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Questions around the treatment of IRA checkbooks

Appleby also highlights questions surrounding the treatment of IRA checkbooks relating to QCDs. Many IRA custodians provide IRA check-writing services in which they write a check drawn on the IRA. However, custodians don't treat those checks consistently if they're used to make QCDs, with some custodians reporting every transaction as a normal distribution, while others let the IRA owner report the transaction as a QCD if it qualifies. Others believe that customer-written IRA checks don't qualify as QCDs.

The varying stances lead to differing reporting practices, and that may lead to discrepancies between tax returns. If a husband and wife each have traditional IRAs with check-writing services, they might receive different Form 1099-Rs, even if they wrote the same checks to the same charities. A custodian's individual reporting policies lead to confusion and variation. And, if Form 1099-R and Code Y don't determine the tax treatment, the confusion continues.

The QCD rules that might impact whether distributions qualify

The 2026 $111,000 annual limit per individual is just one of the rules that distributions need to meet to qualify as QCDs. Taxpayers are required to be age 70.5 or older at the time that they make the distribution, and funds must be transferred directly from an IRA custodian to a qualified charity. Qualifying charities must be 501(c)(3) organizations; donor-advised funds and private foundations don't currently qualify for QCDs. Additionally, taxpayers may not make QCDs from active SEP or SIMPLE IRAs.

What Code Y does and doesn't do

Code Y is a reporting flag, but not a legal determinant of whether a distribution qualifies as a QCD. The IRS has already established numerous requirements for a QCD, so even if a distribution is marked with Code Y, it may not actually qualify to be a QCD. The 1099-R coding doesn't change that.

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Bottom line

If you're making QCDs this year, then it's important to be proactive and to connect with your IRA custodian. Confirm in writing with your custodian to clarify how they plan to code the distribution, and if you use an IRA checkbook, ask your custodian specifically how those distributions are coded. Be sure to keep copies of your checks, as well as the written acknowledgments that you receive from the charity.

When you file your federal income tax, follow the IRS's instructions for reporting the QCDs on your return, even if Code Y doesn't appear on Form 1099-R. If QCDs are part of your tax and retirement plan, putting some extra effort into ensuring they're accurately reflected on your tax return may help you receive full credit for those distributions and avoid potential tax issues later on.

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