Blog · 14 October 2026

Qualified Charitable Distributions in 2026: Form 1099-R Code Y, the $111,000 QCD Limit and What US CPA Firms Should Tell Clients

By Keshav Bansal, CA

A qualified charitable distribution (QCD) is one of the cleanest ways for an older IRA owner to give to charity, and the 2026 Form 1099-R Code Y is the IRS’s first attempt to flag that gift on the information return itself. The IRS Instructions for Forms 1099-R and 5498 (2026) add a new code Y for box 7a “to identify a qualified charitable distribution,” but for tax year 2026 its use is optional. At the same time, IRS Notice 2025-67 raises the 2026 QCD exclusion limit to $111,000 (from $108,000 for 2025). For US CPA firms, that combination means 2026 returns will arrive with some QCDs flagged and many not, so the preparer still has to find, confirm and report every QCD by hand.

What a qualified charitable distribution is

The 2026 Form 1099-R instructions describe a QCD as, generally, “a nontaxable distribution made directly by the trustee of your IRA to an organization eligible to receive tax-deductible contributions,” and point readers to Pub. 590-B for the full rules under §408(d)(8). In practice, the core points CPA firms should keep in front of clients are:

• Age. The IRA owner must be at least 70½ when the distribution is made.
• Direct transfer. The money must go directly from the traditional IRA to the charity. A withdrawal the client deposits and then donates is an ordinary taxable distribution followed by a regular gift.
• Eligible recipient. The gift must go to an eligible public charity. Donor-advised funds and private foundations do not qualify.
• Exclusion, not deduction. A QCD is excluded from adjusted gross income. It is not claimed as a Schedule A charitable deduction, so the client gets the benefit even when taking the standard deduction.
• RMD credit. A QCD can count toward the year’s required minimum distribution.

The AGI point is often the real value. Because the QCD never enters AGI, it can help with AGI-sensitive items such as the taxable portion of Social Security benefits; see our Social Security benefits tax (§86) guide for how provisional income works.

What the 2026 Form 1099-R instructions changed: Code Y

The IRS Instructions for Forms 1099-R and 5498 (2026) say the IRS “added code ‘Y’ to the list of codes for box 7a to identify a qualified charitable distribution (QCD).” Under the box 7a instructions, to report a QCD the payer uses code Y together with:

• Code 7 for a QCD from a non-inherited IRA (normal distribution);
• Code 4 for a QCD from an inherited IRA (death distribution); or
• Code K for a QCD of traditional IRA assets that do not have a readily available fair market value, whether from a non-inherited or inherited IRA.

The key word for 2026 is optional. The instructions state that for tax year 2026 “the use of code Y to report a QCD is optional” and that filers of 2026 Forms 1099-R “may choose, but are not required, to enter code Y in box 7a.” A 2026 Form 1099-R showing only code 7 does not mean there was no QCD.

Why Form 1040 still needs a manual adjustment

Code Y identifies the distribution, but the dollar boxes do not change. For a traditional IRA, the Form 1099-R instructions generally have the payer report the total amount distributed in box 1 and the same amount in box 2a, with the “taxable amount not determined” box in box 2b checked. So a Form 1099-R covering a QCD will still show the full gross distribution in boxes 1 and 2a, with or without code Y.

On Form 1040, the preparer reports the gross IRA distribution, reduces the taxable IRA amount by the QCD, and writes “QCD” next to the line. If the full distribution was a QCD and nothing else applies, the taxable amount for that portion is zero. Missing this step overstates AGI and taxable income. Over-claiming it, for example by treating a gift to a donor-advised fund as a QCD, understates them.

Our post on the IRS substitute for return in Jackson shows how the IRS can treat a full Form 1099-R amount as taxable when nothing else is supported. Clear QCD records are the defense.

The 2026 QCD limit: $111,000

IRS Notice 2025-67 sets the 2026 inflation-adjusted figures. The aggregate amount of QCDs not includible in gross income under §408(d)(8)(A) rises from $108,000 to $111,000 for 2026. The limit applies per IRA owner. Separately, the one-time election to make a QCD to a split-interest entity under §408(d)(8)(F)(i)(II) rises from $54,000 to $55,000.

Because the limit is per IRA owner, married clients should track each spouse’s QCDs separately.

What US CPA firms should tell clients

• Ask about every IRA-to-charity transfer. Because code Y is optional for 2026, do not rely on box 7a alone. Add a direct question to the organizer for clients aged 70½ and older.
• Confirm the payment was direct. Get the custodian’s confirmation or check copy showing the payment went from the IRA to the charity, not to the client.
• Check the recipient. Confirm the charity is an eligible public charity. Gifts to donor-advised funds or private foundations are not QCDs.
• Keep the charity’s acknowledgment. Keep it with the custodian record so the QCD amount can be tied to both the charity and the Form 1099-R.
• Coordinate with RMDs. If the client still has an RMD to take before year-end, a QCD can satisfy part or all of it, up to the $111,000 2026 limit.
• Don’t double-dip. An excluded QCD is not also deducted on Schedule A.

A short firm checklist for 2026 returns

• Pull every 2026 Form 1099-R for IRA owners aged 70½ and older and note the box 7a codes (7, 4 or K, with or without Y).
• Match QCD amounts to custodian records and charity acknowledgments, whether or not code Y appears.
• Report the gross distribution, reduce the taxable amount by the QCD, and write “QCD” on Form 1040.
• Test the total against the $111,000 per-owner limit (and the $55,000 split-interest election, if used).
• Recheck AGI-driven items after the QCD adjustment.

If you are still finishing extended 2025 returns, our October 15, 2026 extension deadline checklist covers that work. QCD intake for 2026 can start as soon as that season closes.

Where this fits for Tax Brew readers

QCD screening is detail work: matching information returns to custodian and charity records, then making the right Form 1040 adjustments. Firms often want extra hands for this when filing volume peaks. If you need support with tax prep and bookkeeping, see how we work with US CPA firms or email info@taxbrewglobal.com.

Check current guidance: this article summarizes the IRS Instructions for Forms 1099-R and 5498 (2026), including the new box 7a code Y and the qualified charitable distributions (QCDs) instructions, IRS Notice 2025-67 (2026 §408(d)(8) QCD limits), and Pub. 590-B as referenced by the IRS. Confirm the Code, Pub. 590-B and current IRS form instructions before advising. This is general information, not tax or legal advice. Sources as of 14 October 2026.