New Reporting for 2025 QCDs

Monday, May 12, 2025

By Sarah Brenner, JD
Director of Retirement Education

The IRS has introduced a new code for the reporting of qualified charitable distributions (QCDs) by IRA custodians on Form 1099-R.

How QCDs Work

QCDs first became available in 2006, and they were made permanent in 2015. The strategy has become increasingly popular among IRA owners who are charitably inclined. With a QCD, IRA owners or beneficiaries who are at least age 70½ make a tax-free donation to charity directly from their IRA. An important benefit of a QCD is that it can be used to satisfy a required minimum distribution (RMD).

The 2025 annual limit is $108,000, and it is indexed for inflation. A one-time QCD of $54,000 can go to a split-interest entity, such as a charitable remainder annuity trust, charitable remainder unitrust or a charitable gift annuity.

QCDs can only be made through a direct transfer of IRA funds to charities that qualify under the tax code. Gifts made to donor-advised funds or private foundations do not qualify. In addition, the client cannot receive anything of value from the charity in exchange for making a QCD, and that must be documented in writing. 

New Code Y

Historically, IRA custodians have not been required to report a QCD differently than any other IRA distribution. There has never been any special code on Form 1099-R to identify the QCD. Instead, the QCD was coded like any other IRA distribution, and it was up to the taxpayer to let the IRS know about the QCD on the tax return.

For 2025 QCDs, the IRS appears to have changed its approach. In April 2025, the IRS released draft Instructions for the 2025 Form 1099-R. These draft Instructions introduced a new Code Y for QCDs. While these are only “draft” instructions, the IRS has also released the final version of the actual 2025 Form 1099-R with Code Y included.

Code Y would seem to be welcome news for both IRA owners and their tax preparers to help ensure that the QCD tax break is not missed. However, as before, IRA owners will need to be careful to make sure that their donation satisfies all of the QCD rules. Simply receiving a 1099-R with Code Y from the custodian does not necessarily guarantee that the donation qualifies for tax-free treatment.

If you have technical questions you would like to have answered, be sure to submit them to [email protected], to be answered on an upcoming Slott Report Mailbag, published every Thursday.

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