1997 Tax Help Archives  

Pensions - The General Rule and the Simplified General Rule

This is archived information that pertains only to the 1997 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

If you retired after July 1, 1986, you can use the General Rule or the Simplified General Rule to figure how much of your pension income is taxable. If your annuity payments from your pension started after November 18, 1996, you generally must use the Simplified General Rule. You must figure the tax-free part when the payments first begin. Any cost-of-living increases you receive are fully taxable. Under these rules, a part of your yearly pension or annuity payments is taxable, and you can exclude a part of each payment from your income.

To determine the tax-free part, you must know how much you have paid into the plan over the years. Just as your contributions may be spread over years, the tax-free amount recovered is spread over years.

To use either rule, you must also know the total amount you can expect to receive over your lifetime. To figure this amount under the Simplified General Rule use either Worksheet A or B in the publications or the Form 1040 instructions. Worksheet A is for annuity payments on or before November 18, 1996 and Worksheet B is for payments starting after that date.

For additional information on the Simplified General Rule, order Publication 575, Pension and Annuity Income. For information on the General Rule, order Publication 939, Pension General Rule (Nonsimplified Method). If you are receiving U.S. Civil Service Retirement Benefits, order Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits.

If you cannot use the Simplified General Rule, you can ask the IRS to figure the tax-free part under the General Rule. There is a $75.00 fee for this service. Publication 939 contains a detailed explanation of the information required to be furnished with your request.

Publications can be ordered by calling 1-800-829-3676, or downloaded from this web site.

Tax Topics & FAQs | Tax Help Archives | Home