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taxmap/pubs/p939-000.htm#en_us_publink100094757
Publication 939

General Rule 
for Pensions 
and Annuities

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What's New(p1)


Beginning in 2013, distributions from an annuity under a nonqualified plan are considered net investment income for the purpose of figuring the net investment income tax (NIIT). For more information, see the instructions for Form 8960, Net Investment Income Tax – Individuals, Estates and Trusts.

Future developments.(p1)


For the latest information about developments related to Publication 939, such as legislation enacted after it was published, go to www.IRS.gov/pub939.

taxmap/pubs/p939-000.htm#en_us_publink1000177210Introduction

This publication gives you the information you need to determine the tax treatment of your pension and annuity income under the General Rule. Generally, each of your monthly annuity payments is made up of two parts: the tax-free part that is a return of your net cost, and the taxable balance.
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What is the General Rule.(p1)

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The General Rule is one of the two methods used to figure the tax-free part of each annuity payment based on the ratio of your investment in the contract to the total expected return. The other method is the Simplified Method, which is discussed in Publication 575, Pension and Annuity Income.
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Who must use the General Rule.(p1)

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Use this publication if you receive pension or annuity payments from:
  1. A nonqualified plan (for example, a private annuity, a purchased commercial annuity, or a nonqualified employee plan),
  2. A qualified plan if:
    1. Your annuity starting date is before November 19, 1996 (and after July 1, 1986), and you do not qualify to use, or did not choose to use, the Simplified Method, or
    2. Your annuity starting date is after November 18, 1996, and as of that date you are age 75 or over and the annuity payments are guaranteed for at least 5 years.
Tax Tip
If your annuity starting date was between July 1, 1986 and November 19, 1996, you were able to elect to use the Simplified Method or the General Rule. This choice is irrevocable and applied to all later annuity payments.
The following are qualified plans.
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Simplified Method.(p2)
If you receive pension or annuity payments from a qualified plan and you are not required to use the General Rule, you must use the Simplified Method to determine the tax-free part of each annuity payment. This method is described in Publication 575, Pension and Annuity Income.
Also, if, at the time the annuity payments began, you were at least age 75 and were entitled to annuity payments from a qualified plan with fewer than 5 years of guaranteed payments, you must use the Simplified Method.
EIC
Beginning in 2013, distributions from an annuity under a nonqualified plan are considered net investment income for the purpose of figuring the net investment income tax (NIIT). For more information, see the instructions for Form 8960, Net Investment Income Tax – Individuals, Estates and Trusts.
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Topics not covered in this publication.(p2)

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Certain topics related to pensions and annuities are not covered in this publication. They include:
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Help from IRS.(p2)

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If, after reading this publication, you need help to figure the taxable part of your pension or annuity, the IRS can do it for you for a fee. For information on this service, see Requesting a Ruling on Taxation of Annuity, later.
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Comments and suggestions.(p2)

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We welcome your comments about this publication and your suggestions for future editions.
You can write to us at the following address:

Internal Revenue Service
Tax Forms and Publications Division
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224


We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.
You can send your comments from www.irs.gov/formspubs/. Click on "More Information" and then on "Comment on Tax Forms and Publications".
Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.
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Ordering forms and publications.(p2)
Visit www.irs.gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received.

Internal Revenue Service
1201 N. Mitsubishi Motorway
Bloomington, IL 61705-6613


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Tax questions.(p2)
If you have a tax question, check the information available on IRS.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

taxmap/pubs/p939-000.htm#TXMP26a287c0

Useful items

You may want to see:


Publication
 524 Credit for the Elderly or the Disabled
 525 Taxable and Nontaxable Income
 571 Tax-Sheltered Annuity Plans (403(b) Plans)
 575 Pension and Annuity Income
 590 Individual Retirement Arrangements (IRAs)
 721 Tax Guide to U.S. Civil Service Retirement Benefits
 910 Guide To Free Tax Services
Form (and Instructions)
 1099-R: Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
See How To Get Tax Help near the end of this publication for information about getting these publications and forms.
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General Information(p3)

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Some of the terms used in this publication are defined in the following paragraphs.
Note.Distributions from pensions and annuities follow the same rules as outlined in this publication unless otherwise noted.
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Types of pensions and annuities.(p3)

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Particular types of pensions and annuities include:
  1. Fixed period annuities. You receive definite amounts at regular intervals for a definite length of time.
  2. Annuities for a single life. You receive definite amounts at regular intervals for life. The payments end at death.
  3. Joint and survivor annuities. The first annuitant receives a definite amount at regular intervals for life. After he or she dies, a second annuitant receives a definite amount at regular intervals for life. The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant.
  4. Variable annuities. You receive payments that may vary in amount for a definite length of time or for life. The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds or cost-of-living indexes.
  5. Disability pensions. You are under minimum retirement age and receive payments because you retired on disability. If, at the time of your retirement, you were permanently and totally disabled, you may be eligible for the credit for the elderly or the disabled discussed in Publication 524.
If your annuity starting date is after November 18, 1996, the General Rule cannot be used for the following qualified plans.
The General Rule is used to figure the tax treatment of various types of pensions and annuities, including nonqualified employee plans. A nonqualified employee plan is an employer's plan that does not meet Internal Revenue Code requirements. It does not qualify for most of the tax benefits of a qualified plan.
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Annuity worksheets.(p3)

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The worksheets found near the end of the text of this publication may be useful to you in figuring the taxable part of your annuity.
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Request for a ruling.(p3)

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If you are unable to determine the income tax treatment of your pension or annuity, you may ask the Internal Revenue Service to figure the taxable part of your annuity payments. This is treated as a request for a ruling. See Requesting a Ruling on Taxation of Annuity near the end of this publication.
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Withholding tax and estimated tax.(p3)

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Your pension or annuity is subject to federal income tax withholding unless you choose not to have tax withheld. If you choose not to have tax withheld from your pension or annuity, or if you do not have enough income tax withheld, you may have to make estimated tax payments.