1996 Tax Help Archives  

Pensions - the General Rule and the
Simplified General Rule

This is archived information that pertains only to the 1996 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. 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 the General Rule, you must also know the total amount you can expect to receive over your lifetime. To figure this amount, you generally must use actuarial tables.

You may be able to use the Simplified General Rule if you meet the following requirements:

1.Your annuity starting date is after July 1, 1986;

2.The annuity payments are for either your life or your life and that of your beneficiary;

3.the payments are from a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity; and

4.when the payments began, you were either under age 75 or entitled to fewer than five years of guaranteed payments.

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

For information on tax changes effective for 1996, refer to Publication 17, Your Federal Income Tax.

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