IRS Introduces New Reporting Code for Charitable IRA Donations

November 10, 2025

Understanding Qualified Charitable Distributions (QCDs)

Individuals aged 70 and a half or older can benefit from one of the more advantageous tax features of IRAs: the ability to donate up to $108,000 directly to qualified charities from their IRA accounts in a manner known as a Qualified Charitable Distribution (QCD). The great thing about QCDs is that they’re not counted as taxable income. Unlike typical charitable donations, which require you to itemize for tax deductions, QCDs automatically provide their tax advantages.

Key Points: The age for required minimum distributions has recently been increased to 73, while the age for QCDs stays the same at 70 and a half. If you’re married and filing jointly, both partners can make contributions up to the annual limit from their individual IRAs.

However, there’s been a bit of a complication with reporting QCDs. Historically, these distributions had to be reported on IRS Form 1099-R as periodic distributions without noting they were QCDs. This created confusion for tax preparers, who needed to clarify on Form 1040 that these amounts were actually not taxable because they were QCDs. Elizabeth, a friend of mine, once mixed this up and it wasn’t fun sorting it out later.

For 2025, this reporting hassle is being addressed. The IRS has rolled out a new code, Y, specifically for QCDs, making it easier for everyone involved to keep track.

The New Code Y for Eligible Charities

Starting in 2025, IRA administrators will use code Y in Box 7 of Form 1099-R to identify QCDs. This code will come along with additional distribution codes.

Code 7 for QCDs from non-inherited IRAs.
Code 4 for those from inherited IRAs.
Code K for QCDs that include assets from a self-directed IRA, which may not have a clear market value.

This new code Y will streamline the process if the entire distribution qualifies as a QCD. That said, if only part of it does, it’ll require careful calculation by tax professionals to identify the right QCD amount. Definitely not something you want to overlook.

Myths About Roth IRAs and QCDs

A curious thing about the updated IRS instructions is the lack of an option to combine code Y with Roth IRA distribution codes. This could reinforce the misconception that QCDs can’t be made from Roth IRAs. In truth, as clarified in IRS Notice 2007-7, it’s possible to create a QCD from a Roth IRA, provided certain conditions are met. In these cases, any related amounts can be distributed as a QCD.

That said, since distributions from a Roth IRA are usually tax-free, using this route for QCDs isn’t usually optimal for tax planning. But the key takeaway here is that it is legally permissible.

Not All Distributions to Charities Are QCDs

To qualify as a QCD, a few conditions need to be met:

You must be at least 70 and a half years old.
The distribution has to go directly from your IRA to a qualified charity.

It’s good to be informed about the rules concerning QCDs. Just viewing general guidelines, like “How to Make Tax-Free Contributions from an IRA,” can be super helpful.

Only the taxable part of an IRA can qualify as a QCD. So if some of your IRA comprises after-tax funds, that portion can’t count.

For instance: Imagine you have a traditional IRA valued at $100,000, with $70,000 in pre-tax funds and $30,000 in after-tax. If you instruct your custodian to send the entire amount to a charity as a QCD:

The $70,000 could qualify as a QCD and would be excluded from your income.
The $30,000 would not be eligible and would instead be treated like a standard charitable donation. Depending on whether you itemize, that could mean a deduction.

It really underscores the importance of checking with your tax professional about your IRA’s eligibility before initiating any transfers.

Regular Charitable Contributions Versus QCDs

If you’re making a direct contribution from a checking account or non-IRA funds, you might be able to itemize that as a deduction, given certain limits.

In contrast, because QCDs are excluded from your income, they can also help in reducing other tax burdens, like Medicare surcharges related to your income level.

For example: Picture Jane, 74, who needs to make a minimum distribution of $20,000 from her entirely pre-tax IRA. If she decides to transfer $15,000 directly to eligible charities using the QCD method, that amount doesn’t count as income. That helps keep her adjusted gross income lower and avoids potential spikes in her Medicare premiums. If Jane had instead taken the distribution herself and then donated, she’d have to report the whole amount as income. This could affect her tax situation negatively.

Your Responsibilities in This Process

It’s important to remember that the IRA administrator doesn’t decide what part of the distribution qualifies as a QCD. The IRS relies on your “reasonable representations” for determining how to treat distributions as QCDs, up to that limit. Some trustees even have a checkbox on their forms to confirm this qualification.

Typically, the custodian will not withhold taxes on these amounts, but they cannot verify eligibility—they put that responsibility on you and your tax professional.

It’s also necessary to file Form 8606 to track any nondeductible contributions, and it’s wise to think about after-tax rollovers from employer plans. Doing so helps ensure your requested QCD stays within your IRA’s pre-tax balance.

What if Your Custodian Isn’t Ready for Code Y?

While code Y officially applies to the 2025 reports, not every administrator may be ready. The IRS has indicated that the use of code Y will be optional for IRA administrators that year.

If your Form 1099-R for QCDs in 2025 lacks code Y, make sure to inform your tax preparer about the QCD portion of your distribution so it can be excluded from your income accurately.

Code Y Simplifies Reporting, But Not Your Role

The introduction of code Y is certainly an improvement in identifying QCDs on tax forms and reducing errors. Nevertheless, understanding your IRA balance eligibility remains your responsibility. It’s always a good strategy to consult with a tax advisor before making a QCD request and keep thorough records of your contributions.

When utilized correctly, QCDs serve as incredibly potent tools for charitable planning among IRA owners, and the new reporting rules can offer a smoother experience during tax season.