Publication 575 |
2008 Tax Year |
Publication 575 - Main Contents
Definitions.
Some of the terms used in this publication are defined in the following paragraphs.
Pension.
A pension is generally a series of definitely determinable payments made to you after you retire from work. Pension
payments are made regularly and
are based on such factors as years of service and prior compensation.
Annuity.
An annuity is a series of payments under a contract made at regular intervals over a period of more than one full
year. They can be either fixed
(under which you receive a definite amount) or variable (not fixed). You can buy the contract alone or with the help of your
employer.
Qualified employee plan.
A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive
benefit of employees or their
beneficiaries and that meets Internal Revenue Code requirements. It qualifies for special tax benefits, such as tax deferral
for employer
contributions and capital gain treatment or the 10-year tax option for lump-sum distributions (if participants qualify). To
determine whether your
plan is a qualified plan, check with your employer or the plan administrator.
Qualified employee annuity.
A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets
Internal Revenue Code
requirements.
Designated Roth account.
A designated Roth account is a separate account created under a qualified Roth contribution program to which participants
may elect to have part or
all of their elective deferrals to a 401(k) or 403(b) plan designated as Roth contributions. Elective deferrals that are designated
as Roth
contributions are included in your income. However, qualified distributions are not included in your income. You should check
with your plan
administrator to determine if your plan will accept designated Roth contributions.
Tax-sheltered annuity plan.
A tax-sheltered annuity plan (often referred to as a 403(b) plan or a tax-deferred annuity plan) is a retirement plan
for employees of public
schools and certain tax-exempt organizations. Generally, a tax-sheltered annuity plan provides retirement benefits by purchasing
annuity contracts for
its participants.
Types of pensions and annuities.
Pensions and annuities include the following types.
Fixed-period annuities.
You receive definite amounts at regular intervals for a specified length of time.
Annuities for a single life.
You receive definite amounts at regular intervals for life. The payments end at death.
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.
Variable annuities.
You receive payments that may vary in amount for a specified length of time or for life. The amounts you receive may
depend upon such variables as
profits earned by the pension or annuity funds, cost-of-living indexes, or earnings from a mutual fund.
Disability pensions.
You receive disability payments because you retired on disability and have not reached minimum retirement age.
More than one program.
You may receive employee plan benefits from more than one program under a single trust or plan of your employer. If
you participate in more than
one program, you may have to treat each as a separate pension or annuity contract, depending upon the facts in each case.
Also, you may be considered
to have received more than one pension or annuity. Your former employer or the plan administrator should be able to tell you
if you have more than one
contract.
Example.
Your employer set up a noncontributory profit-sharing plan for its employees. The plan provides that the amount held in the
account of each
participant will be paid when that participant retires. Your employer also set up a contributory defined benefit pension plan
for its employees
providing for the payment of a lifetime pension to each participant after retirement.
The amount of any distribution from the profit-sharing plan depends on the contributions (including allocated forfeitures)
made for the participant
and the earnings from those contributions. Under the pension plan, however, a formula determines the amount of the pension
benefits. The amount of
contributions is the amount necessary to provide that pension.
Each plan is a separate program and a separate contract. If you get benefits from these plans, you must account for each separately,
even though
the benefits from both may be included in the same check.
Distributions from a designated Roth account are treated separately from other distributions from the plan.
Qualified domestic relations order (QDRO).
A QDRO is a judgment, decree, or order relating to payment of child support, alimony, or marital property rights to
a spouse, former spouse, child,
or other dependent of a participant in a retirement plan. The QDRO must contain certain specific information, such as the
name and last known mailing
address of the participant and each alternate payee, and the amount or percentage of the participant's benefits to be paid
to each alternate payee. A
QDRO may not award an amount or form of benefit that is not available under the plan.
A spouse or former spouse who receives part of the benefits from a retirement plan under a QDRO reports the payments
received as if he or she were
a plan participant. The spouse or former spouse is allocated a share of the participant's cost (investment in the contract)
equal to the cost times a
fraction. The numerator of the fraction is the present value of the benefits payable to the spouse or former spouse. The denominator
is the present
value of all benefits payable to the participant.
A distribution that is paid to a child or other dependent under a QDRO is taxed to the plan participant.
The tax rules in this publication apply both to annuities that provide fixed payments and to annuities that provide payments
that vary in amount
based on investment results or other factors. For example, they apply to commercial variable annuity contracts, whether bought
by an employee
retirement plan for its participants or bought directly from the issuer by an individual investor. Under these contracts,
the owner can generally
allocate the purchase payments among several types of investment portfolios or mutual funds and the contract value is determined
by the performance of
those investments. The earnings are not taxed until distributed either in a withdrawal or in annuity payments. The taxable
part of a distribution is
treated as ordinary income.
For information on the tax treatment of a transfer or exchange of a variable annuity contract, see Transfers of Annuity Contracts under
Taxation of Nonperiodic Payments, later.
Withdrawals.
If you withdraw funds before your annuity starting date and your annuity is under a qualified retirement plan, a ratable
part of the amount
withdrawn is tax free. The tax-free part is based on the ratio of your cost (investment in the contract) to your account balance
under the plan.
If your annuity is under a nonqualified plan (including a contract you bought directly from the issuer), the amount
withdrawn is allocated first to
earnings (the taxable part) and then to your cost (the tax-free part). However, if you bought your annuity contract before
August 14, 1982, a
different allocation applies to the investment before that date and the earnings on that investment. To the extent the amount
withdrawn does not
exceed that investment and earnings, it is allocated first to your cost (the tax-free part) and then to earnings (the taxable
part).
If you withdraw funds (other than as an annuity) on or after your annuity starting date, the entire amount withdrawn
is generally taxable.
The amount you receive in a full surrender of your annuity contract at any time is tax free to the extent of any cost
that you have not previously
recovered tax free. The rest is taxable.
For more information on the tax treatment of withdrawals, see Taxation of Nonperiodic Payments, later. If you withdraw funds from your
annuity before you reach age 59½, also see Tax on Early Distributions under Special Additional Taxes, later.
Annuity payments.
If you receive annuity payments under a variable annuity plan or contract, you recover your cost tax free under either
the Simplified Method or the
General Rule, as explained under Taxation of Periodic Payments, later. For a variable annuity paid under a qualified plan, you generally
must use the Simplified Method. For a variable annuity paid under a nonqualified plan (including a contract you bought directly
from the issuer), you
must use a special computation under the General Rule. For more information, see Variable annuities in Publication 939 under
Computation Under the General Rule.
Death benefits.
If you receive a single-sum distribution from a variable annuity contract because of the death of the
owner or annuitant, the distribution is generally taxable only to the extent it is more than the unrecovered cost of the contract.
If you choose to
receive an annuity, the payments are subject to tax as described above. If the contract provides a joint and survivor annuity
and the primary
annuitant had received annuity payments before death, you figure the tax-free part of annuity payments you receive as the
survivor in the same way the
primary annuitant did. See Survivors and Beneficiaries, later.
Section 457 Deferred Compensation Plans
If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a section
457 deferred compensation
plan. If your plan is an eligible plan, you are not taxed currently on pay that is deferred under the plan or on any earnings
from the plan's
investment of the deferred pay. You are generally taxed on amounts deferred in an eligible state or local government plan
only when they are
distributed from the plan. You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed
or otherwise made
available to you.
This publication covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment
of deferrals. For
information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication
525.
Is your plan eligible?
To find out if your plan is an eligible plan, check with your employer. Plans that are not eligible section 457 plans
include the following.
-
Bona fide vacation leave, sick leave, compensatory time, severance pay, disability pay, or death benefit plans.
-
Nonelective deferred compensation plans for nonemployees (independent contractors).
-
Deferred compensation plans maintained by churches.
-
Length of service award plans for bona fide volunteer firefighters and emergency medical personnel. An exception applies if
the total amount
paid to a volunteer exceeds $3,000 for any year of service.
If you retired on disability, you generally must include in income any disability pension you receive under a plan that is
paid for by your
employer. You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form
1040NR until you reach
minimum retirement age. Minimum retirement age generally is the age at which you can first receive a pension or annuity if
you are not disabled.
You may be entitled to a tax credit if you were permanently and totally disabled when you retired. For information on this
credit, see Publication
524.
Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Report
the payments on Form
1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b.
Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or
its allies) are not
included in income. For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief
for Victims of Terrorist
Attacks.
Insurance Premiums for Retired Public Safety Officers
If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue
squad or ambulance
crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the
premiums for accident or
health insurance or long-term care insurance. The premiums can be for coverage for you, your spouse, or dependents. The distribution
must be made
directly from the plan to the insurance provider. You can exclude from income the smaller of the amount of the insurance premiums
or $3,000. You can
only make this election for amounts that would otherwise be included in your income. The amount excluded from your income
cannot be used to claim a
medical expense deduction.
An eligible retirement plan is a governmental plan that is:
If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. The amount
shown in box 2a of
Form 1099-R does not reflect this exclusion. Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a;
or Form 1040NR, line 17a.
Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Enter “PSO” next to the appropriate line on
which you report the taxable amount.
Railroad Retirement Benefits
Benefits paid under the Railroad Retirement Act fall into two categories. These categories are treated differently for income
tax purposes.
The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad
employee or
beneficiary would have been entitled to receive under the social security system. This part of the tier 1 benefit is the social
security equivalent
benefit (SSEB) and you treat it for tax purposes like social security benefits. If you received, repaid, or had tax withheld
from the SSEB portion of
tier 1 benefits during 2007, you will receive Form RRB-1099, Payments by the Railroad Retirement Board (or Form RRB-1042S,
Statement for Nonresident
Alien Recipients of Payments by the Railroad Retirement Board, if you are a nonresident alien) from the U.S. Railroad Retirement
Board (RRB).
For more information about the tax treatment of the SSEB portion of tier 1 benefits and Forms RRB-1099 and RRB-1042S, see
Publication 915.
The second category contains the rest of the tier 1 railroad retirement benefits, called the non-social security equivalent
benefit (NSSEB). It
also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Treat this category of benefits,
shown on Form
RRB-1099-R, as an amount received from a qualified employee plan. This allows for the tax-free (nontaxable) recovery of employee
contributions from
the tier 2 benefits and the NSSEB part of the tier 1 benefits. (The NSSEB and tier 2 benefits, less certain repayments, are
combined into one amount
called the Contributory Amount Paid on Form RRB-1099-R.) Vested dual benefits and supplemental annuity benefits are non-contributory
pensions and are
fully taxable. See Taxation of Periodic Payments, later, for information on how to report your benefits and how to recover the employee
contributions tax free. Form RRB-1099-R is used for U.S. citizens, resident aliens, and nonresident aliens.
Nonresident aliens.
A nonresident alien is an individual who is not a citizen or a resident alien of the United States. Nonresident aliens
are subject to mandatory
U.S. tax withholding unless exempt under a tax treaty between the United States and their country of legal residency. A tax
treaty exemption may
reduce or eliminate tax withholding from railroad retirement benefits. See Tax withholding, later, for more information.
If you are a nonresident alien and your tax withholding rate changed or your country of legal residence changed during
the year, you may receive
more than one Form RRB-1042S or Form RRB-1099-R. To determine your total benefits paid or repaid and total tax withheld for
the year, you should add
the amounts shown on all forms you received for that year. For information on filing requirements for aliens, see Publication
519, U.S. Tax Guide for
Aliens. For information on tax treaties between the United States and other countries that may reduce or eliminate U.S. tax
on your benefits, see
Publication 901, U.S. Tax Treaties.
Tax withholding.
For SSEB payments received, get Form W-4V, Voluntary Withholding Request, from the IRS and file it with the RRB to
request or change your income
tax withholding. For NSSEB, tier 2, VDB, and supplemental annuity payments received, use Form RRB W-4P, Withholding Certificate
for Railroad
Retirement Payments, to elect, revoke, or change your income tax withholding. If you are a nonresident alien or a U.S. citizen
living abroad, you
should provide Form RRB-1001, Nonresident Questionnaire, to the RRB to furnish citizenship and residency information and to
claim any treaty exemption
from U.S. tax withholding. Nonresident U.S. citizens cannot elect an exempt withholding status on payments delivered outside
of the U.S.
Help from the RRB.
To request an RRB form or to get help with questions about an RRB benefit, you should contact your nearest RRB field
office if you reside in the
United States (call 1-800-808-0772 for the nearest field office) or U.S. consulate/Embassy if you reside outside the United
States. You can visit the
RRB on the Internet at www.rrb.gov.
Form RRB-1099-R.
The following discussion explains the items shown on Form RRB-1099-R. The amounts shown on this form are before any
deduction for:
-
Federal income tax withholding,
-
Medicare premiums,
-
Legal process garnishment payments,
-
Overall minimum assignment payments,
-
Recovery of a prior year overpayment of an NSSEB, tier 2 benefit, VDB, or supplemental annuity benefit, or
-
Recovery of Railroad Unemployment Insurance Act benefits received while awaiting payment of your railroad retirement annuity.
The amounts shown on this form are after any offset for:
-
Social Security benefits,
-
Age reduction,
-
Public Service pensions or public disability benefits,
-
Dual railroad retirement entitlement under another RRB claim number,
-
Work deductions,
-
Legal process partition deductions,
-
Actuarial adjustment,
-
Annuity waiver, or
-
Recovery of a current-year overpayment of NSSEB, tier 2, VDB, or supplemental annuity benefits.
The amounts shown on Form RRB-1099-R do not reflect any special rules, such as capital gain treatment or the special
10-year tax option for
lump-sum payments, or tax-free rollovers. To determine if any of these rules apply to your benefits, see the discussions about
them later.
Generally, amounts shown on your Form RRB-1099-R are considered a normal distribution. Use distribution code “ 7” if you are asked for a
distribution code.
There are three copies of this form. Copy B is to be included with your income tax return if federal income tax is
withheld. Copy C is for your own
records. Copy 2 is filed with your state, city, or local income tax return, when required. See the illustrated Copy B (Form
RRB-1099-R) above.
Each beneficiary will receive his or her own Form RRB-1099-R. If you receive benefits on more than one railroad retirement
record, you may get more
than one Form RRB-1099-R. So that you get your form timely, make sure the RRB always has your current mailing address.
Box 1—Claim Number and Payee Code.
Your claim number is a six- or nine-digit number preceded by an alphabetical prefix. This is the number under which
the RRB paid your benefits.
Your payee code follows your claim number and is the last number in this box. It is used by the RRB to identify you under
your claim number. In all
your correspondence with the RRB, be sure to use the claim number and payee code shown in this box.
Box 2—Recipient's Identification Number.
This is the recipient's U.S. taxpayer identification number. It is the social security number (SSN), individual taxpayer
identification number
(ITIN), or employer identification number (EIN), if known, for the person or estate listed as the recipient.
If you are a resident or nonresident alien who must furnish a taxpayer identification number to the IRS and are not eligible
to obtain an SSN, use
Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN. The instructions for Form W-7
explain how and when to
apply.
Box 3—Employee Contributions.
This is the amount of taxes withheld from the railroad employee's earnings that exceeds the amount of taxes that would
have been withheld had the
earnings been covered under the social security system. This amount is the employee's cost (investment in the contract) that
you use to figure the
tax-free part of the NSSEB and tier 2 benefit you received (the amount shown in box 4). (For information on how to figure
the tax-free part, see
Partly Taxable Payments under Taxation of Periodic Payments, later.) The amount shown is the total employee contributions, not
reduced by any amounts that the RRB calculated as previously recovered. It is the latest amount reported for 2007 and may
have increased or decreased
from a previous Form RRB-1099-R. If this amount has changed, the change is retroactive. You may need to refigure the tax-free
part of your NSSEB/tier
2 benefit for 2007 and prior tax years. If this box is blank, it means that the amount of your NSSEB and tier 2 payments shown
in box 4 is fully
taxable.
If you had a previous annuity entitlement that ended and you are figuring the tax-free part of your NSSEB/tier 2 benefit for
your current annuity
entitlement, you should contact the RRB for confirmation of your correct employee contributions amount.
Box 4—Contributory Amount Paid.
This is the gross amount of the NSSEB and tier 2 benefit you received in 2007, less any 2007 benefits you repaid in
2007. (Any benefits you repaid
in 2007 for an earlier year or for an unknown year are shown in box 8.) This amount is the total contributory pension paid
in 2007 and is usually
partly taxable and partly tax free. You figure the tax-free part as explained in Partly Taxable Payments under Taxation of Periodic
Payments, later, using the latest reported amount of employee contributions shown in box 3 as the cost (investment in the contract).
Box 5—Vested Dual Benefit.
This is the gross amount of vested dual benefit (VDB) payments paid in 2007, less any 2007 VDB payments you repaid
in 2007. It is fully taxable.
VDB payments you repaid in 2007 for an earlier year or for an unknown year are shown in box 8.
Note.
The amounts shown in boxes 4 and 5 may represent payments for 2007 and/or other years after 1983.
Box 6—Supplemental Annuity.
This is the gross amount of supplemental annuity benefits paid in 2007, less any 2007 supplemental annuity benefits
you repaid in 2007. It is fully
taxable. Supplemental annuity benefits you repaid in 2007 for an earlier year or for an unknown year are shown in box 8.
Box 7—Total Gross Paid.
This is the sum of boxes 4, 5, and 6. The amount represents the total pension paid in 2007. Include this amount on
Form 1040, line 16a; Form 1040A,
line 12a; or Form 1040NR, line 17a.
Box 8—Repayments.
This amount represents any NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit you repaid to the RRB in 2007
for years before 2007 or for
unknown years. The amount shown in this box has not been deducted from the amounts shown in boxes 4, 5, and 6. It only includes
repayments of benefits
that were taxable to you. This means it only includes repayments in 2007 of NSSEB benefits paid after 1985, tier 2 and VDB
benefits paid after 1983,
and supplemental annuity benefits paid in any year. If you included the benefits in your income in the year you received them,
you may be able to
deduct the repaid amount. For more information about repayments, see Repayment of benefits received in an earlier year, later.
You may have repaid an overpayment of benefits by returning a payment, by making a payment, or by having an amount withheld.
Box 9—Federal Income Tax Withheld.
This is the total federal income tax withheld from your NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit.
Include this on your income
tax return as tax withheld. If you are a nonresident alien and your tax withholding rate and/or country of legal residence
changed during 2007, you
will receive more than one Form RRB-1099-R for 2007. Therefore, add the amounts in box 9 of all Forms RRB-1099-R you receive
for 2007 to determine
your total amount of U.S. federal income tax withheld for 2007.
Box 10—Rate of Tax.
If you are taxed as a U.S. citizen or resident alien, this box does not apply to you. If you are a nonresident alien,
an entry in this box
indicates the rate at which tax was withheld on the NSSEB, tier 2, VDB, and supplemental annuity payments that were paid to
you in 2007. If you are a
nonresident alien whose tax was withheld at more than one rate during 2007, you will receive a separate Form RRB-1099-R for
each rate change during
2007.
Box 11—Country.
If you are taxed as a U.S. citizen or resident alien, this box does not apply to you. If you are a nonresident alien,
an entry in this box
indicates the country of which you were a resident for tax purposes at the time you received railroad retirement payments
in 2007. If you are a
nonresident alien who was a resident of more than one country during 2007, you will receive a separate Form RRB-1099-R for
each country of residence
during 2007.
Box 12—Medicare Premium Total.
This is for information purposes only. The amount shown in this box represents the total amount of Part B Medicare
premiums deducted from your
railroad retirement annuity payments in 2007. Medicare premium refunds are not included in the Medicare total. The Medicare
total is normally shown on
Form RRB-1099 (if you are a citizen or resident alien of the United States) or Form RRB-1042S (if you are a nonresident alien).
However, if Form
RRB-1099 or Form RRB-1042S is not required for 2007, then this total will be shown on Form RRB-1099-R. If your Medicare premiums
were deducted from
your social security benefits, paid by a third party, refunded to you, and/or you paid the premiums by direct billing, your
Medicare total will not be
shown in this box.
Repayment of benefits received in an earlier year.
If you had to repay any railroad retirement benefits that you had included in your income in an earlier year because
at that time you thought you
had an unrestricted right to it, you can deduct the amount you repaid in the year in which you repaid it.
If you repaid $3,000 or less in 2007, deduct it on Schedule A (Form 1040), line 23. The 2%-of-adjusted-gross- income
limit applies to this
deduction. You cannot take this deduction if you file Form 1040A.
If you repaid more than $3,000 in 2007, you can either take a deduction for the amount
repaid on Schedule A (Form 1040), line 28 or you can take a credit against your tax. For more information, see Repayments in Publication
525.
Withholding Tax and Estimated Tax
Your retirement plan distributions are subject to federal income tax withholding. However, you can choose not to have tax
withheld on payments you
receive unless they are eligible rollover distributions. (These are distributions, described later under Rollovers, that are eligible for
rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA.) If you choose
not to have tax withheld or
if you do not have enough tax withheld, you may have to make estimated tax payments. See Estimated tax, later.
The withholding rules apply to the taxable part of payments you receive from:
-
An employer pension, annuity, profit-sharing, or stock bonus plan,
-
Any other deferred compensation plan,
-
A traditional individual retirement arrangement (IRA), or
-
A commercial annuity.
For this purpose, a commercial annuity means an annuity, endowment, or life insurance contract issued by an insurance company.
There will be no withholding on any part of a distribution that (it is reasonable to believe) will not be includible in gross
income.
Choosing no withholding.
You can choose not to have income tax withheld from retirement plan payments unless they are eligible rollover distributions.
You can make this
choice on Form W-4P
for periodic and nonperiodic payments. This choice generally remains in effect until you revoke it.
The payer will ignore your choice not to have tax withheld if:
-
You do not give the payer your social security number (in the required manner), or
-
The IRS notifies the payer, before the payment is made, that you gave an incorrect social security number.
To choose not to have tax withheld, a U.S. citizen or resident alien must give the payer a home address in the United
States or its possessions.
Without that address, the payer must withhold tax. For example, the payer has to withhold tax if the recipient has provided
a U.S. address for a
nominee, trustee, or agent to whom the benefits are delivered, but has not provided his or her own U.S. home address.
If you do not give the payer a home address in the United States or its possessions, you can choose not to have tax
withheld only if you certify to
the payer that you are not a U.S. citizen, a U.S. resident alien, or someone who left the country to avoid tax. But if you
so certify, you may be
subject to the 30% flat rate withholding that applies to nonresident aliens. This 30% rate will not apply if you are exempt
or subject to a reduced
rate by treaty. For details, get Publication 519.
Periodic payments.
Unless you choose no withholding, your annuity or similar periodic payments (other than eligible rollover distributions)
will be treated like wages
for withholding purposes. Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for
a period of time greater
than one year (such as for 15 years or for life). You should give the payer a completed withholding certificate (Form W-4P
or a similar form provided
by the payer). If you do not, tax will be withheld as if you were married and claiming three withholding allowances.
Tax will be withheld as if you were single and were claiming no withholding allowances if:
-
You do not give the payer your social security number (in the required manner), or
-
The IRS notifies the payer (before any payment is made) that you gave an incorrect social security number.
You must file a new withholding certificate to change the amount of withholding.
Nonperiodic distributions.
Unless you choose no withholding, the withholding rate for a nonperiodic distribution (a payment other than a
periodic payment) that is not an eligible rollover distribution is 10% of the distribution. You can also ask the payer to
withhold an additional
amount using Form W-4P. The part of any loan treated as a distribution (except an offset amount to repay the loan), explained
later, is subject to
withholding under this rule.
Eligible rollover distribution.
If you receive an eligible rollover distribution, 20% of it generally will be
withheld for income tax. You cannot choose not to have tax withheld from an eligible rollover distribution. However, tax will
not be withheld if you
have the plan administrator pay the eligible rollover distribution directly to another qualified plan or an IRA in a direct
rollover. For more
information about eligible rollover distributions, see Rollovers, later.
Estimated tax.
Your estimated tax is the total of your expected income tax, self-employment tax, and certain other taxes for the
year, minus your expected credits
and withheld tax. Generally, you must make estimated tax payments for 2008 if you expect to owe at least $1,000 in tax (after
subtracting your
withholding and credits) and you expect your withholding and credits to be less than the smaller of:
-
90% of the tax to be shown on your 2008 return, or
-
100% of the tax shown on your 2007 return.
If your adjusted gross income for 2007 was more than $150,000 ($75,000 if your filing status for 2008 is married filing separately),
substitute
110% for 100% in (2) above. For more information, get Publication 505, Tax Withholding and Estimated Tax.
In figuring your withholding or estimated tax, remember that a part of your monthly social security or
equivalent tier 1 railroad retirement benefits may be taxable. See Publication 915. You can choose to have income tax withheld
from those benefits.
Use Form W-4V to make this choice.
Cost (Investment in the Contract)
Distributions from your pension or annuity plan may include amounts treated as a recovery of your cost (investment in the
contract). If any part of
a distribution is treated as a recovery of your cost under the rules explained in this publication, that part is tax free.
Therefore, the first step
in figuring how much of a distribution is taxable is to determine the cost of your pension or annuity.
In general, your cost is your net investment in the contract as of the annuity starting date (or the date of the distribution,
if earlier). To find
this amount, you must first figure the total premiums, contributions, or other amounts you paid. This includes the amounts
your employer contributed
that were taxable to you when paid. (However, see Foreign employment contributions, later.) It does not include amounts withheld from your
pay on a tax-deferred basis (money that was taken out of your gross pay before taxes were deducted). It also does not include
amounts you contributed
for health and accident benefits (including any additional premiums paid for double indemnity or disability benefits).
From this total cost you must subtract the following amounts.
-
Any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income and that you received by
the later of the
annuity starting date or the date on which you received your first payment.
-
Any other tax-free amounts you received under the contract or plan by the later of the dates in (1).
-
If you must use the Simplified Method for your annuity payments, the tax-free part of any single-sum payment received in connection
with the
start of the annuity payments, regardless of when you received it. (See Simplified Method, later, for information on its required use.)
-
If you use the General Rule for your annuity payments, the value of the refund feature in your annuity contract. (See General
Rule, later, for information on its use.) Your annuity contract has a refund feature if the annuity payments are for your life
(or the lives of
you and your survivor) and payments in the nature of a refund of the annuity's cost will be made to your beneficiary or estate
if all annuitants die
before a stated amount or a stated number of payments are made. For more information, see Publication 939.
The tax treatment of the items described in (1) through (3) is discussed later under Taxation of Nonperiodic Payments.
Form 1099-R. If you began receiving periodic payments of a life annuity in 2007, the
payer should show your total contributions to the plan in box 9b of your 2007 Form 1099-R.
Annuity starting date defined.
Your annuity starting date is the later of the first day of the first period for which you received a payment or the
date the plan's obligations
became fixed.
Example.
On January 1, you completed all your payments required under an annuity contract providing for monthly payments starting on
August 1 for the period
beginning July 1. The annuity starting date is July 1. This is the date you use in figuring the cost of the contract and selecting
the appropriate
number from Table 1 for line 3 of the Simplified Method Worksheet.
Designated Roth accounts.
Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject
to applicable withholding
requirements.
Foreign employment contributions.
If you worked abroad, your cost includes amounts contributed by your employer that were not includible in your gross
income. This applies to
contributions that were made either:
-
Before 1963 by your employer for that work,
-
After 1962 by your employer for that work if you performed the services under a plan that existed on March 12, 1962, or
-
After 1996 by your employer on your behalf if you performed the services of a foreign missionary (a duly ordained, commissioned,
or licensed
minister of a church or a lay person).
Foreign employment contributions while a nonresident alien.
In determining your cost, special rules apply if you are a U.S. citizen or resident alien who received distributions
in 2007 from a plan to which
contributions were made while you were a nonresident alien. Your contributions and your employer's contributions are not included
in your cost if the
contribution:
-
Was made based on compensation which was for services performed outside the United States while you were a nonresident alien,
and
-
Was not subject to income tax under the laws of the United States or any foreign country, but only if the contribution would
have been
subject to income tax if paid as cash compensation when the services were performed.
Taxation of Periodic Payments
This section explains how the periodic payments you receive from a pension or annuity plan are taxed. Periodic payments are
amounts paid at regular
intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life).
These payments are also
known as amounts received as an annuity. If you receive an amount from your plan that is not a periodic payment, see Taxation of Nonperiodic
Payments, later.
In general, you can recover the cost of your pension or annuity tax free over the period you are to receive the payments.
The amount of each
payment that is more than the part that represents your cost is taxable (however, see Insurance Premiums for Retired Public Safety
Officers, earlier.
Designated Roth accounts.
If you receive a qualified distribution from a designated Roth account, the distribution is not included in your gross
income. This applies to both
your cost in the account and income earned on that account. A qualified distribution is generally a distribution that is:
-
Made after a 5-tax-year period of participation; and
-
Made on or after the date you reach age 59½, made to a beneficiary or your estate on or after your death, or attributable
to
your being disabled.
If the distribution is not a qualified distribution, the rules discussed in this section apply. The designated Roth
account is treated as a
separate contract.
Period of participation.
The 5-tax-year period of participation is the 5-tax-year period beginning with the first tax year for which the participant
made a designated Roth
contribution to the plan. Therefore, for designated Roth contributions made in 2007, the first year for which a qualified
distribution can be made is
2012.
However, if a direct rollover is made to the plan from a designated Roth account under another plan, the 5-tax-year
period for the recipient plan
begins with the first tax year for which the participant first had designated Roth contributions made to the other plan.
The pension or annuity payments that you receive are fully taxable if you have no cost in the contract because any of the
following situations
applies to you (however, see Insurance Premiums for Retired Public Safety Officers, earlier).
-
You did not pay anything or are not considered to have paid anything for your pension or annuity.
-
Your employer did not withhold contributions from your salary.
-
You got back all of your contributions tax free in prior years (however, see Exclusion not limited to cost under Partly
Taxable Payments, later).
Report the total amount you got on Form 1040, line 16b; Form 1040A, line 12b; or on Form 1040NR, line 17b. You should make
no entry on Form 1040,
line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a.
Deductible voluntary employee contributions.
Distributions you receive that are based on your accumulated deductible voluntary employee contributions are generally
fully taxable in the year
distributed to you. Accumulated deductible voluntary employee contributions include net earnings on the contributions. If
distributed as part of a
lump sum, they do not qualify for the 10-year tax option or capital gain treatment.
If you have a cost to recover from your pension or annuity plan (see Cost (Investment in the Contract), earlier), you can exclude part
of each annuity payment from income as a recovery of your cost. This tax-free part of the payment is figured when your annuity
starts and remains the
same each year, even if the amount of the payment changes. The rest of each payment is taxable (however, see Insurance Premiums for Retired
Public Safety Officers, earlier).
You figure the tax-free part of the payment using one of the following methods.
-
Simplified Method. You generally must use this method if your annuity is paid under a qualified plan (a qualified employee
plan, a qualified
employee annuity, or a tax-sheltered annuity plan or contract). You cannot use this method if your annuity is paid under a
nonqualified
plan.
-
General Rule. You must use this method if your annuity is paid under a nonqualified plan. You generally cannot use this method
if your
annuity is paid under a qualified plan.
You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you
recover part of
your cost.
If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately.
Qualified plan annuity starting before November 19, 1996.
If your annuity is paid under a qualified plan and your annuity starting date (defined earlier under Cost (Investment in the Contract))
is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the Simplified Method or the General
Rule. If your annuity
starting date is before July 2, 1986, you use the General Rule unless your annuity qualified for the Three-Year Rule. If you
used the Three-Year Rule
(which was repealed for annuities starting after July 1, 1986), your annuity payments are generally now fully taxable.
Exclusion limit.
Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the
years.
Exclusion limited to cost.
If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years
as a recovery of the cost
cannot exceed your total cost. Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous
itemized deduction on the
final return of the decedent. This deduction is not subject to the 2%-of-adjusted-gross-income limit.
Example 1.
Your annuity starting date is after 1986, and you exclude $100 a month ($1,200 a year) under the Simplified Method. The total
cost of your annuity
is $12,000. Your exclusion ends when you have recovered your cost tax free, that is, after 10 years (120 months). After that,
your annuity payments
are generally fully taxable.
Example 2.
The facts are the same as in Example 1, except you die (with no surviving annuitant) after the eighth year of retirement. You have
recovered tax free only $9,600 (8 × $1,200) of your cost. An itemized deduction for your unrecovered cost of $2,400 ($12,000
minus $9,600) can
be taken on your final return.
Exclusion not limited to cost.
If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive
your annuity. If you chose
a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting
date. The total exclusion
may be more than your cost.
Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number
of anticipated monthly
payments. For an annuity that is payable for the lives of the annuitants, this number is based on the annuitants' ages on
the annuity starting date
and is determined from a table. For any other annuity, this number is the number of monthly annuity payments under the contract.
Who must use the Simplified Method.
You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you meet both of
the following conditions.
-
You receive your pension or annuity payments from any of the following plans.
-
A qualified employee plan.
-
A qualified employee annuity.
-
A tax-sheltered annuity plan (403(b) plan).
-
On your annuity starting date, at least one of the following conditions applies to you.
-
You are under age 75.
-
You are entitled to less than 5 years of guaranteed payments.
Guaranteed payments.
Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example,
the amount of your investment)
is payable even if you and any survivor annuitant do not live to receive the minimum. If the minimum amount is less than the
total amount of the
payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment
increases), you are
entitled to less than 5 years of guaranteed payments.
Annuity starting before November 19, 1996.
If your annuity starting date is after July 1, 1986, and before November 19, 1996, and you chose to use the Simplified
Method, you must continue to
use it each year that you recover part of your cost. You could have chosen to use the Simplified Method if your annuity is
payable for your life (or
the lives of you and your survivor annuitant) and you met both of the conditions listed earlier under Who must use the Simplified Method.
Who cannot use the Simplified Method.
You cannot use the Simplified Method if you receive your pension or annuity from a nonqualified plan or otherwise
do not meet the conditions
described in the preceding discussion. See General Rule, later.
How to use the Simplified Method.
Complete Worksheet A in the back of this publication to figure your taxable annuity for 2007. Be sure to
keep the completed worksheet; it will help you figure your taxable annuity next year.
To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity.
How you do this depends on
whether the annuity is for a single life, multiple lives, or a fixed period. For this purpose, treat an annuity that is payable
over the life of an
annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary
annuity payable to the
annuitant's child under age 25.
You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last
year and used last
year's worksheet to figure your taxable annuity. Instead, enter the amount from line 4 of last year's worksheet on line 4
of this year's worksheet.
Single-life annuity.
If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total
number of expected monthly
payments. Enter on line 3 the number shown for your age on your annuity starting date. This number will differ depending on
whether your annuity
starting date is before November 19, 1996, or after November 18, 1996.
Multiple-lives annuity.
If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to
determine the total number of
expected monthly payments. Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date.
For an annuity payable to
you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor
annuitant. For an annuity
that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and
youngest annuitants. Do not
treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's
death.
However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages.
Instead, you must use Table 1 at
the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date.
This number will differ
depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996.
Fixed-period annuity.
If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly
payments to enter on line 3
of the worksheet is the number of monthly annuity payments under the contract.
Example.
Bill Smith, age 65, began receiving retirement benefits in 2007 under a joint and survivor annuity. Bill's annuity starting
date is January 1,
2007. The benefits are to be paid for the joint lives of Bill and his wife, Kathy, age 65. Bill had contributed $31,000 to
a qualified plan and had
received no distributions before the annuity starting date. Bill is to receive a retirement benefit of $1,200 a month, and
Kathy is to receive a
monthly survivor benefit of $600 upon Bill's death.
Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is
under age 75. Because
his annuity is payable over the lives of more than one annuitant, he uses his and Kathy's combined ages and Table 2 at the
bottom of Worksheet A in
completing line 3 of the worksheet. His completed worksheet is shown on the next page.
Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. Upon Bill's death, if Bill has
not recovered the
full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. The full amount of any annuity payments
received after 310
payments are paid must be included in gross income.
If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered
cost on the final income
tax return of the last to die. This deduction is not subject to the 2%-of-adjusted- gross-income limit.
Worksheet A. Simplified Method Worksheet for Bill Smith
1. |
Enter the total pension or annuity payments received this year. Also, add this amount to the total for Form 1040, line
16a; Form 1040A, line 12a; or Form 1040NR, line 17a
|
1. |
$14,400 |
2. |
Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion*
|
2. |
31,000 |
|
Note. If your annuity starting date was before this year and you completed this worksheet last year, skip
line 3 and enter the amount from line 4 of last year's worksheet on line 4 below. Otherwise, go to line 3.
|
|
|
3. |
Enter the appropriate number from Table 1 below. But if your annuity starting date was after 1997 and the payments are
for your life and that of your beneficiary, enter the appropriate number from Table 2 below
|
3. |
310 |
4. |
Divide line 2 by the number on line 3
|
4. |
100 |
5. |
Multiply line 4 by the number of months for which this year's payments were made. If your annuity starting date was
before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Otherwise, go to line 6
|
5. |
1,200 |
6. |
Enter any amount previously recovered tax free in years after 1986. This is the amount shown on line 10 of your
worksheet for last year
|
6. |
-0- |
7. |
Subtract line 6 from line 2
|
7. |
31,000 |
8. |
Enter the smaller of line 5 or line 7
|
8. |
1,200 |
9. |
Taxable amount for year. Subtract line 8 from line 1. Enter the result, but not less than zero. Also, add
this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Note: If your Form 1099-R shows a larger
taxable amount, use the amount on this line instead. If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety
Officers earlier before entering an amount on your tax return
|
9. |
$13,200 |
10. |
Was your annuity starting date before 1987?
□ Yes. STOP. Do not complete the rest of this worksheet.
□ No. Add lines 6 and 8. This is the amount you have recovered tax free through 2007. You will need this number if you need
to fill out this
worksheet next year
|
10. |
1,200 |
11. |
Balance of cost to be recovered. Subtract line 10 from line 2. If zero, you will not have to complete this
worksheet next year. The payments you receive next year will generally be fully taxable
|
11. |
$29,800 |
|
TABLE 1 FOR LINE 3 ABOVE |
|
|
|
and your annuity starting date was—
|
|
|
if the age at annuity
starting date was... |
before November 19,
1996, enter on line 3... |
after November 18,
1996, enter on line 3... |
|
|
55 or under
|
300
|
360
|
|
|
56-60
|
260
|
310
|
|
|
61-65
|
240
|
260
|
|
|
66-70
|
170
|
210
|
|
|
71 or older
|
120
|
160
|
|
|
TABLE 2 FOR LINE 3 ABOVE |
|
|
if the combined ages
at annuity starting
date were... |
|
then enter
on line 3... |
|
|
110 or under
|
|
410
|
|
|
111-120
|
|
360
|
|
|
121-130
|
|
310
|
|
|
131-140
|
|
260
|
|
|
141 or older
|
|
210
|
|
* A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996.
Multiple annuitants.
If you and one or more other annuitants receive payments at the same time, you exclude from each annuity payment a
pro rata share of the monthly
tax-free amount. Figure your share by taking the following steps.
-
Complete your worksheet through line 4 to figure the monthly tax-free amount.
-
Divide the amount of your monthly payment by the total amount of the monthly payments to all annuitants.
-
Multiply the amount on line 4 of your worksheet by the amount figured in (2) above. The result is your share of the monthly
tax-free
amount.
Replace the amount on line 4 of the worksheet with the result in (3) above. Enter that amount on line 4 of your worksheet
each year.
Under the General Rule, you determine the tax-free part of each annuity payment based on the ratio of the cost of the contract
to the total
expected return. Expected return is the total amount you and other eligible annuitants can expect to receive under the contract.
To figure it, you
must use life expectancy (actuarial) tables prescribed by the IRS.
Who must use the General Rule.
You must use the General Rule if you receive pension or annuity payments from:
-
A nonqualified plan (such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan), or
-
A qualified plan if you are age 75 or older on your annuity starting date and your annuity payments are guaranteed for at
least 5
years.
Annuity starting before November 19, 1996.
If your annuity starting date is after July 1, 1986, and before November 19, 1996, you had to use the General Rule
for either circumstance just
described. You also had to use it for any fixed-period annuity. If you did not have to use the General Rule, you could have
chosen to use it. If your
annuity starting date is before July 2, 1986, you had to use the General Rule unless you could use the Three-Year Rule.
If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your
cost.
Who cannot use the General Rule.
You cannot use the General Rule if you receive your pension or annuity from a qualified plan and none of the circumstances
described in the
preceding discussions apply to you. See Simplified Method, earlier.
More information.
For complete information on using the General Rule, including the actuarial tables you need, see Publication 939.
Taxation of Nonperiodic Payments
This section of the publication explains how any nonperiodic distributions you receive under a pension or annuity plan are
taxed. Nonperiodic
distributions are also known as amounts not received as an annuity. They include all payments other than periodic payments
and corrective
distributions.
For example, the following items are treated as nonperiodic distributions.
-
Cash withdrawals.
-
Distributions of current earnings (dividends) on your investment. However, do not include these distributions in your income
to the extent
the insurer keeps them to pay premiums or other consideration for the contract.
-
Certain loans. See Loans Treated as Distributions, later.
-
The value of annuity contracts transferred without full and adequate consideration. See Transfers of Annuity Contracts,
later.
Corrective distributions of excess plan contributions.
Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the
excess is taxable to you. To
correct an excess, your plan may distribute it to you (along with any income earned on the excess). Although the plan reports
the corrective
distributions on Form 1099-R, the distribution is not treated as a nonperiodic distribution from the plan. It is not subject
to the allocation rules
explained in the following discussion, it cannot be rolled over into another plan, and it is not subject to the additional
tax on early distributions.
If your retirement plan made a corrective distribution of excess
amounts (excess deferrals, excess contributions, or excess annual additions), your Form 1099-R should have the code “ 8,” “ B,” “ D,”
“ P,” or “ E” in box 7.
For information on plan contribution limits and how to report corrective distributions of excess contributions, see
Retirement Plan
Contributions under Employee Compensation in Publication 525.
Figuring the Taxable Amount
How you figure the taxable amount of a nonperiodic distribution depends on whether it is made before the annuity starting
date or on or after the
annuity starting date. If it is made before the annuity starting date, its tax treatment also depends on whether it is made
under a qualified or
nonqualified plan and, if it is made under a nonqualified plan, whether it fully discharges the contract, is received under
certain life insurance or
endowment contracts, or is allocable to an investment you made before August 14, 1982.
You may be able to roll over the taxable amount of a nonperiodic distribution from a qualified retirement plan into another
qualified retirement
plan or an IRA tax free. See Rollovers, later. If you do not make a tax-free rollover and the distribution qualifies as a
lump-sum
distribution, you may be able to elect an optional method of figuring the tax on the taxable amount. See Lump-Sum Distributions,
later.
Annuity starting date.
The annuity starting date is either the first day of the first period for which you receive an annuity payment under
the contract or the date on
which the obligation under the contract becomes fixed, whichever is later.
Distributions of employer securities.
If you receive a distribution of employer securities from a qualified retirement plan, you may be able to
defer the tax on the net unrealized appreciation (NUA) in the securities. The NUA is the net increase in the securities' value
while they were in the
trust. This tax deferral applies to distributions of the employer corporation's stocks, bonds, registered debentures, and
debentures with interest
coupons attached.
If the distribution is a lump-sum distribution, tax is deferred on all of the NUA unless you choose to include it
in your income for the year of
the distribution.
A lump-sum distribution for this purpose is the distribution or payment of a plan participant's entire
balance (within a single tax year) from all of the employer's qualified plans of one kind (pension, profit-sharing, or stock
bonus plans), but only if
paid:
-
Because of the plan participant's death,
-
After the participant reaches age 59½,
-
Because the participant, if an employee, separates from service, or
-
After the participant, if a self-employed individual, becomes totally and permanently disabled.
If you choose to include NUA in your income for the year of the distribution and the participant was born before January 2,
1936, you may be able
to figure the tax on the NUA using the optional methods described under Lump-Sum Distributions, later.
If the distribution is not a lump-sum distribution, tax is deferred only on the NUA resulting from employee contributions
other than deductible
voluntary employee contributions.
The NUA on which tax is deferred should be shown in box 6 of the Form 1099-R you receive from the payer of the distribution.
When you sell or exchange employer securities with tax-deferred NUA, any gain is long-term capital gain up to the
amount of the NUA that is not
included in your basis in the employer securities. Any gain that is more than the NUA is long-term or short-term gain, depending
on how long you held
the securities after the distribution.
Your basis in the employer securities is the total of the following amounts.
-
Your contributions to the plan that are attributable to the securities.
-
Your employer's contributions that were taxed as ordinary income in the year the securities were distributed.
-
Your NUA in the securities that is attributable to employer contributions and taxed as ordinary income in the year the securities
were
distributed.
How to report.
Enter the total amount of a nonperiodic distribution on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR,
line 17a. Enter the taxable
amount of the distribution on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. However, if you make a
tax-free rollover or elect
an optional method of figuring the tax on a lump-sum distribution, see How to report in the discussions of those tax treatments, later.
Distribution On or After Annuity Starting Date
If you receive a nonperiodic payment from your annuity contract on or after the annuity starting date, you generally must
include all of the
payment in gross income. For example, a cost-of-living increase in your pension after the annuity starting date is an amount
not received as an
annuity and, as such, is fully taxable.
Reduction in subsequent payments.
If the annuity payments you receive are reduced because you received a nonperiodic distribution, you can exclude part
of the nonperiodic
distribution from gross income. The part you can exclude is equal to your cost in the contract reduced by any tax-free amounts
you previously received
under the contract, multiplied by a fraction. The numerator is the reduction in each annuity payment because of the nonperiodic
distribution. The
denominator is the full unreduced amount of each annuity payment originally provided for.
Single-sum in connection with the start of annuity payments.
If you receive a single-sum payment on or after your annuity starting date in connection with the start of annuity
payments for which you must use
the Simplified Method, treat the single-sum payment as if it were received before your annuity starting date. (See Simplified Method under
Taxation of Periodic Payments, earlier, for information on its required use.) Follow the rules in the next discussion, Distribution
Before Annuity Starting Date From a Qualified Plan.
Distribution in full discharge of contract.
You may receive an amount on or after the annuity starting date that fully satisfies the payer's obligation under
the contract. The amount may be a
refund of what you paid for the contract or for the complete surrender, redemption, or maturity of the contract. Include the
amount in gross income
only to the extent that it exceeds the remaining cost of the contract.
Distribution Before Annuity Starting Date From a Qualified Plan
If you receive a nonperiodic distribution before the annuity starting date from a qualified retirement plan, you generally
can allocate only part
of it to the cost of the contract. You exclude from your gross income the part that you allocate to the cost. You include
the remainder in your gross
income.
For this purpose, a qualified retirement plan is:
-
A qualified employee plan (or annuity contract purchased by such a plan),
-
A qualified employee annuity plan, or
-
A tax-sheltered annuity plan (403(b) plan).
Use the following formula to figure the tax-free amount of the distribution.
|
|
|
|
|
|
|
Amount received
|
x
|
Cost of contract
|
=
|
Tax-free amount
|
|
Account balance
|
For this purpose, your account balance includes only amounts to which you have a nonforfeitable right (a right that cannot
be taken away).
Example.
Ann Brown received a $50,000 distribution from her retirement plan before her annuity starting date. She had $10,000 invested
(cost) in the plan.
Her account balance was $100,000. She can exclude $5,000 of the $50,000 distribution, figured as follows:
|
|
|
|
|
|
|
$50,000
|
x
|
$10,000
|
=
|
$5,000
|
|
$100,000
|
Defined contribution plan.
Under a defined contribution plan, your contributions (and income allocable to them) may be treated as a separate
contract for figuring the taxable
part of any distribution. A defined contribution plan is a plan in which you have an individual account. Your benefits are
based only on the amount
contributed to the account and the income, expenses, etc., allocated to the account.
Plans that permitted withdrawal of employee contributions.
If you contributed before 1987 to a pension plan that, as of May 5, 1986, permitted you to withdraw your contributions
before your separation from
service, any distribution before your annuity starting date is tax free to the extent that it, when added to earlier distributions
received after
1986, does not exceed your cost as of December 31, 1986. Apply the allocation described in the preceding discussion only to
any excess distribution.
Distribution Before Annuity Starting Date From a Nonqualified Plan
If you receive a nonperiodic distribution before the annuity starting date from a plan other than a qualified retirement plan,
it is allocated
first to earnings (the taxable part) and then to the cost of the contract (the tax-free part). This allocation rule applies,
for example, to a
commercial annuity contract you bought directly from the issuer. You include in your gross income the smaller of:
-
The nonperiodic distribution, or
-
The amount by which the cash value of the contract (figured without considering any surrender charge) immediately before you
receive the
distribution exceeds your investment in the contract at that time.
Example.
You bought an annuity from an insurance company. Before the annuity starting date under your annuity contract, you received
a $7,000 distribution.
At the time of the distribution, the annuity had a cash value of $16,000 and your investment in the contract was $10,000.
The distribution is
allocated first to earnings, so you must include $6,000 ($16,000 - $10,000) in your gross income. The remaining $1,000 ($7,000
- $6,000)
is a tax-free return of part of your investment.
Exception to allocation rule.
Certain nonperiodic distributions received before the annuity starting date are not subject to the allocation rule
in the preceding discussion.
Instead, you include the amount of the payment in gross income only to the extent that it exceeds the cost of the contract.
This exception applies to the following distributions.
-
Distributions in full discharge of a contract that you receive as a refund of what you paid for the contract or for the complete
surrender,
redemption, or maturity of the contract.
-
Distributions from life insurance or endowment contracts (other than modified endowment contracts, as defined in section 7702A
of the
Internal Revenue Code) that are not received as an annuity under the contracts.
-
Distributions under contracts entered into before August 14, 1982, to the extent that they are allocable to your investment
before August
14, 1982.
If you bought an annuity contract before August 14, 1982, and made investments both before August 14, 1982, and later,
the distributed amounts are
allocated to your investment or to earnings in the following order.
-
The part of your investment that was made before August 14, 1982. This part of the distribution is tax free.
-
The earnings on the part of your investment that was made before August 14, 1982. This part of the distribution is taxable.
-
The earnings on the part of your investment that was made after August 13, 1982. This part of the distribution is taxable.
-
The part of your investment that was made after August 13, 1982. This part of the distribution is tax free.
Distribution of U.S. savings bonds.
If you receive U.S. savings bonds in a taxable distribution from a retirement or
profit-sharing plan, report the value of the bonds at the time of distribution as income. The value of the bonds includes
accrued interest. When you
cash the bonds, your Form 1099-INT will show the total interest accrued, including the part you reported when the bonds were
distributed to you. For
information on how to adjust your interest income for U.S. savings bond interest you previously reported, see How To Report Interest Income
in chapter 1 of Publication 550, Investment Income and Expenses.
Loans Treated as Distributions
If you borrow money from your retirement plan, you must treat the loan as a nonperiodic distribution from
the plan unless it qualifies for the exception to this loan-as-distribution rule explained later. This treatment also applies
to any loan under a
contract purchased under your retirement plan, and to the value of any part of your interest in the plan or contract that
you pledge or assign (or
agree to pledge or assign). It applies to loans from both qualified and nonqualified plans, including commercial annuity contracts
you purchase
directly from the issuer. Further, it applies if you renegotiate, extend, renew, or revise a loan that qualified for the exception
below if the
altered loan does not qualify. In that situation, you must treat the outstanding balance of the loan as a distribution on
the date of the transaction.
You determine how much of the loan is taxable using the allocation rules for nonperiodic distributions discussed under Figuring the Taxable
Amount, earlier. The taxable part may be subject to the additional tax on early distributions. It is not an eligible rollover distribution
and
does not qualify for the 10-year tax option.
Exception for qualified plan, 403(b) plan, and government plan loans.
At least part of certain loans under a qualified employee plan, qualified employee annuity, tax-sheltered annuity
(403(b) plan), or government plan
is not treated as a distribution from the plan. This exception to the loan-as-distribution rule applies only to a loan that
either:
If a loan qualifies for this exception, you must treat it as a nonperiodic distribution only to the extent that the
loan, when added to the
outstanding balances of all your loans from all plans of your employer (and certain related employers) exceeds the lesser
of:
You must reduce the $50,000 amount if you already had an outstanding loan from the plan during the 1-year period ending
the day before you took out
the loan. The amount of the reduction is your highest outstanding loan balance during that period minus the outstanding balance
on the date you took
out the new loan. If this amount is zero or less, ignore it.
If you were affected by Hurricane Katrina, Rita, or Wilma, see Hurricane-Related Relief , later.
Substantially level payments.
To qualify for the exception to the loan-as-distribution rule, the loan must require substantially level payments
at least quarterly over the life
of the loan. If the loan is from a designated Roth account, the payments must be satisfied separately for that part of the
loan and for the part of
the loan from other accounts under the plan. This level payment requirement does not apply to the period in which you are
on a leave of absence
without pay or with a rate of pay that is less than the required installment. Generally, this leave of absence must not be
longer than 1 year. You
must repay the loan within 5 years from the date of the loan (unless the loan was used to acquire your main home). Your installment
payments after the
leave ends must not be less than your original payments.
However, if your plan suspends your loan payments for any part of the period during which you are in the uniformed
services, you will not be
treated as having received a distribution even if the suspension is for more than 1 year and the term of the loan is extended.
The loan payments must
resume upon completion of such period and the loan must be repaid in substantially level installments within 5 years from
the date of the loan (unless
the loan was used to acquire your main home) plus the period of suspension.
Example 1.
On May 1, 2007, you borrowed $40,000 from your retirement plan. The loan was to be repaid in level monthly installments over
5 years. The loan was
not used to acquire your main home. You make nine monthly payments and start an unpaid leave of absence that lasts for 12
months. You were not in a
uniformed service during this period. After the leave period ends and you resume active employment, you resume making repayments
on the loan. You must
repay this loan by April 30, 2012 (5 years from the date of this loan). You can increase your monthly installments or you
can make the original
monthly installments and on April 30, 2012, pay the balance.
Example 2.
The facts are the same as in Example 1, except that you are on a leave of absence performing service in the uniformed services
for 2 years. The
loan payments were suspended for that period. You must resume making loan payments at the end of that period and the loan
must be repaid by April 30,
2014 (5 years from the date of the loan plus the period of suspension).
Related employers and related plans.
In determining loan balances for purposes of applying the exception to the loan-as-distribution rule, you must add
the balances of all your loans
from all plans of your employer and from all plans of your employers who are treated as a single employer. Treat separate
employers' plans as plans of
a single employer if they are treated that way under other qualified retirement plan rules because the employers are related.
Employers are related if they are:
-
Members of a controlled group of corporations,
-
Businesses under common control, or
-
Members of an affiliated service group.
An affiliated service group generally is two or more service organizations whose relationship involves an ownership
connection. Their relationship
also includes the regular or significant performance of services by one organization for or in association with another.
Denial of interest deduction.
If the loan from a qualified plan is not treated as a distribution because the exception applies, you cannot deduct
any of the interest on the loan
during any period that:
-
The loan is secured by amounts from elective deferrals under a qualified cash or deferred arrangement (section 401(k) plan)
or a salary
reduction agreement to purchase a tax-sheltered annuity, or
-
You are a key employee as defined in section 416(i) of the Internal Revenue Code.
Reporting by plan.
If your loan is treated as a distribution, you should receive a Form 1099-R showing
code “ L” in box 7.
Effect on investment in the contract.
If your loan is treated as a distribution, you must reduce your investment in the
contract to the extent that the distribution is tax free under the allocation rules for qualified plans explained earlier.
Repayments of the loan
increase your investment in the contract to the extent that the distribution is taxable under those rules.
If you receive a loan under a nonqualified plan other than a 403(b) plan, including a commercial annuity contract
that you purchase directly from
the issuer, you increase your investment in the contract to the extent that the distribution is taxable under the general
allocation rule for
nonqualified plans explained earlier. Repayments of the loan do not affect your investment in the contract. However, if the
distribution is excepted
from the general allocation rule (for example, because it is made under a contract entered into before August 14, 1982), you
reduce your investment in
the contract to the extent that the distribution is tax free and increase it for loan repayments to the extent that the distribution
is taxable.
Transfers of Annuity Contracts
If you transfer without full and adequate consideration an annuity contract issued after April 22, 1987, you are treated as
receiving a nonperiodic
distribution. The distribution equals the excess of:
-
The cash surrender value of the contract at the time of transfer, over
-
Your investment in the contract at that time.
This rule does not apply to transfers between spouses or transfers between former spouses incident to a divorce.
Tax-free exchange.
No gain or loss is recognized on an exchange of an annuity contract for another annuity contract if the insured or
annuitant remains the same.
However, if an annuity contract is exchanged for a life insurance or endowment contract, any gain due to interest accumulated
on the contract is
ordinary income.
If you transfer a full or partial interest in a tax-sheltered annuity that is not subject to restrictions on early distributions
to another
tax-sheltered annuity, the transfer qualifies for nonrecognition of gain or loss.
If you exchange an annuity contract issued by a life insurance company that is subject to a rehabilitation, conservatorship,
or similar state
proceeding for an annuity contract issued by another life insurance company, the exchange qualifies for nonrecognition of
gain or loss. The exchange
is tax free even if the new contract is funded by two or more payments from the old annuity contract. This also applies to
an exchange of a life
insurance contract for a life insurance, endowment, or annuity contract.
If you transfer part of the cash surrender value of an existing annuity contract for a new annuity contract issued by another
insurance company,
the transfer qualifies for nonrecognition of gain or loss. The funds must be transferred directly between the insurance companies.
Your investment in
the original contract immediately before the exchange is allocated between the contracts based on the percentage of the cash
surrender value allocated
to each contract.
Example.
You own an annuity contract issued by ABC Insurance. You assign 60% of the cash surrender value of that contract to DEF Insurance
to purchase an
annuity contract. The funds are transferred directly between the insurance companies. You do not recognize any gain or loss
on the transaction. After
the exchange, your investment in the new contract is equal to 60% of your investment in the old contract immediately before
the exchange. Your
investment in the old contract is equal to 40% of your original investment in that contract.
Tax-free transfers for certain cash distributions.
If you receive cash from the surrender of one contract and invest the cash in another contract, you generally do not
have a tax-free transfer.
However, you can elect to receive tax-free treatment for a cash distribution from an insurance company that is subject to
a rehabilitation,
conservatorship, insolvency, or similar state proceeding if all of the following conditions are met.
-
You withdraw all the cash to which you are entitled.
-
You reinvest the proceeds within 60 days in a single contract issued by another insurance company.
-
You assign all rights to any future distributions to the new issuer if the cash distribution is restricted by the state proceeding
to an
amount that is less than required for full settlement.
-
An exchange of these contracts would otherwise qualify as a tax-free transfer.
You must give the new issuer a statement containing the following information.
-
The amount of cash distributed under the old contract.
-
The amount of cash reinvested in the new contract.
-
Your investment in the old contract on the date of the initial distribution.
You must also attach the following items to your timely filed income tax return for the year of the initial distribution.
-
A copy of the statement you gave to the new issuer.
-
A statement that contains the words “ELECTION UNDER REV. PROC. 92-44,” the new issuer's name, and the policy number or similar
identifying information for the new contract.
Tax-free exchange reported on Form 1099-R.
If you make a tax-free exchange of an annuity contract for another annuity contract issued by a different company,
the exchange will be shown on
Form 1099-R with a code “ 6” in box 7. You need not report this on your tax return.
Date of purchase of contract received in a tax-free exchange.
If you acquire an annuity contract in a tax-free exchange for another annuity contract, its date of purchase is the
date you purchased the annuity
you exchanged. This rule applies for determining if the annuity qualifies for exemption from the tax on early distributions
as an immediate annuity.
See Tax on Early Distributions, later.
This section on lump-sum distributions only applies if the plan participant was born before January 2, 1936. If the plan participant
was born after
January 1, 1936, the taxable amount of this nonperiodic payment is reported as discussed earlier.
A lump-sum distribution is the distribution or payment in 1 tax year of a plan participant's entire balance from all
of the employer's qualified plans of one kind (for example, pension, profit-sharing, or stock bonus plans). A distribution
from a nonqualified plan
(such as a privately purchased commercial annuity or a section 457 deferred compensation plan of a state or local government
or tax-exempt
organization) cannot qualify as a lump-sum distribution.
The participant's entire balance from a plan does not include certain forfeited amounts. It also does not include any deductible
voluntary employee
contributions allowed by the plan after 1981 and before 1987.
If you receive a lump-sum distribution from a qualified employee plan or qualified employee annuity and the plan participant
was born before
January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. The part from active participation
in the plan
before 1974 may qualify as capital gain subject to a 20% tax rate. The part from participation after 1973 (and any part from
participation before 1974
that you do not report as capital gain) is ordinary income. You may be able to use the 10-year tax option, discussed later,
to figure tax on the
ordinary income part.
Each individual, estate, or trust who receives part of a lump-sum distribution on behalf of a plan participant who was born
before January 2, 1936,
can choose whether to elect the optional methods for the part each received. However, if two or more trusts receive the distribution,
the plan
participant or the personal representative of a deceased participant must make the choice.
Use Form 4972 to figure the separate tax on a lump-sum distribution using the optional methods. The tax figured on
Form 4972 is added to the regular tax figured on your other income. This may result in a smaller tax than you would pay by
including the taxable
amount of the distribution as ordinary income in figuring your regular tax.
Alternate payee under qualified domestic relations order.
If you receive a distribution as an alternate payee under a qualified domestic relations order (discussed earlier
under General
Information), you may be able to choose the optional tax computations for it. You can make this choice for a distribution that would
be treated
as a lump-sum distribution had it been received by your spouse or former spouse (the plan participant). However, for this
purpose, the balance to your
credit does not include any amount payable to the plan participant.
If you choose an optional tax computation for a distribution received as an alternate payee, this choice will not
affect any election for
distributions from your own plan.
More than one recipient.
One or all of the recipients of a lump-sum distribution can use the optional tax computations. See Multiple recipients of a lump-sum
distribution in the instructions for Form 4972.
Reemployment.
A separated employee's vested percentage in his or her retirement benefit may increase if he or she is rehired by
the employer within 5 years
following separation from service. This possibility does not prevent a distribution made before reemployment from qualifying
as a lump-sum
distribution. However, if the employee elected an optional method of figuring the tax on the distribution and his or her vested
percentage in the
previous retirement benefit increases after reemployment, the employee must recapture the tax saved. This is done by increasing
the tax for the year
in which the increase in vesting first occurs.
Distributions that do not qualify.
The following distributions do not qualify as lump-sum distributions for the capital gain treatment or 10-year tax
option.
-
The part of a distribution not rolled over if the distribution is partially rolled over to another qualified plan or an IRA.
-
Any distribution if an earlier election to use either the 5- or 10-year tax option had been made after 1986 for the same plan
participant.
-
U.S. Retirement Plan Bonds distributed with a lump sum.
-
Any distribution made during the first 5 tax years that the participant was in the plan, unless it was made because the participant
died.
-
The current actuarial value of any annuity contract included in the lump sum. (Form 1099-R, box 8, should show this amount,
which you use
only to figure tax on the ordinary income part of the distribution.)
-
Any distribution to a 5% owner that is subject to penalties under section 72(m)(5)(A) of the Internal Revenue Code.
-
A distribution from an IRA.
-
A distribution from a tax-sheltered annuity (section 403(b) plan).
-
A distribution of the redemption proceeds of bonds rolled over tax free to a qualified pension plan, etc., from a qualified
bond purchase
plan.
-
A distribution from a qualified plan if the participant or his or her surviving spouse previously received an eligible rollover
distribution
from the same plan (or another plan of the employer that must be combined with that plan for the lump-sum distribution rules)
and the previous
distribution was rolled over tax free to another qualified plan or an IRA.
-
A distribution from a qualified plan that received a rollover after 2001 from an IRA (other than a conduit IRA), a governmental
section 457
plan, or a section 403(b) tax-sheltered annuity on behalf of the plan participant.
-
A distribution from a qualified plan that received a rollover after 2001 from another qualified plan on behalf of that plan
participant's
surviving spouse.
-
A corrective distribution of excess deferrals, excess contributions, excess aggregate contributions, or excess annual additions.
-
A lump-sum credit or payment from the Federal Civil Service Retirement System (or the Federal Employees' Retirement System).
How to treat the distribution.
If you receive a lump-sum distribution, you may have the following options for how to treat the taxable part.
-
Report the part of the distribution from participation before 1974 as a capital gain (if you qualify) and the part from participation
after
1973 as ordinary income.
-
Report the part of the distribution from participation before 1974 as a capital gain (if you qualify) and use the 10-year
tax option to
figure the tax on the part from participation after 1973 (if you qualify).
-
Use the 10-year tax option to figure the tax on the total taxable amount (if you qualify).
-
Roll over all or part of the distribution. See Rollovers, later. No tax is currently due on the part rolled over. Report any part
not rolled over as ordinary income.
-
Report the entire taxable part of the distribution as ordinary income on your tax return.
The first three options are explained in the following discussions.
Electing optional lump-sum treatment.
You can choose to use the 10-year tax option or capital gain treatment only once after 1986 for any plan participant.
If you make this choice, you
cannot use either of these optional treatments for any future distributions for the participant.
Complete Form 4972 and attach it to your Form 1040 if you choose to use one or both of the tax
options. If you received more than one lump-sum distribution for a plan participant during the year, you must add them together
in your computation.
If you and your spouse are filing a joint return and you both have received a lump-sum distribution, each of you should complete
a separate Form 4972.
Time for choosing.
You must decide to use the tax options before the end of the time, including extensions, for making a claim for credit
or refund of tax. This is
usually 3 years after the date the return was filed or 2 years after the date the tax was paid, whichever is later. (Returns
filed before their due
date are considered filed on their due date.)
Changing your mind.
You can change your mind and decide not to use the tax options within the time period just discussed. If you change
your mind, file Form 1040X,
Amended U.S. Individual Income Tax Return, with a statement saying you do not want to use the optional lump-sum treatment.
Generally, you must pay any
additional tax due to the change with the Form 1040X.
How to report.
If you elect capital gain treatment (but not the 10-year tax option) for a lump-sum distribution, include the ordinary
income part of the
distribution on Form 1040, lines 16a and 16b; or on Form 1040NR, lines 17a and 17b. Enter the capital gain part of the distribution
in Part II of Form
4972. Include the tax from Form 4972, line 7 in the total on Form 1040, line 44; or on Form 1040NR, line 41.
If you elect the 10-year tax option, do not include any part of the distribution on Form 1040, lines 16a or 16b; or
on Form 1040NR, lines 17a or
17b. Report the entire distribution in Part III of Form 4972 or, if you also elect capital gain treatment, report the capital
gain part in Part II and
the ordinary income part in Part III. Include the tax from Form 4972, line 30 in the total on Form 1040, line 44; or on Form
1040NR, line 41.
Taxable and tax-free parts of the distribution.
The taxable part of a lump-sum distribution is the employer's contributions and income earned on your account. You
may recover your cost in the
lump sum and any net unrealized appreciation (NUA) in employer securities tax free.
Cost.
In general, your cost is the total of:
-
The plan participant's nondeductible contributions to the plan,
-
The plan participant's taxable costs of any life insurance contract distributed,
-
Any employer contributions that were taxable to the plan participant, and
-
Repayments of any loans that were taxable to the plan participant.
You must reduce this cost by amounts previously distributed tax free.
NUA.
The NUA in employer securities (box 6 of Form 1099-R) received as part of a lump-sum distribution is generally tax
free until you sell or exchange
the securities. (See Distributions of employer securities under Figuring the Taxable Amount, earlier.) However, if you choose to
include the NUA in your income for the year of the distribution and there is an amount in box 3 of Form 1099-R, part of the
NUA will qualify for
capital gain treatment. Use the NUA Worksheet in the instructions for Form 4972 to find the part that qualifies.
Losses.
You may be able to claim a loss on your return if you receive a lump-sum distribution that is less than the plan
participant's cost. You must
receive the distribution entirely in cash or worthless securities. The amount you can claim is the difference between the
participant's cost and the
amount of the cash distribution, if any.
To claim the loss, you must itemize deductions on Schedule A (Form 1040). Show the loss as a miscellaneous deduction
subject to the
2%-of-adjusted-gross-income limit.
You cannot claim a loss if you receive securities that are not worthless, even if the total value of the distribution
is less than the plan
participant's cost. You recognize gain or loss only when you sell or exchange the securities.
A loss under a nonqualified plan, such as a commercial variable annuity, is deductible in the same manner as a lump-sum distribution.
Capital gain treatment applies only to the taxable part of a lump-sum distribution resulting from participation in the plan
before 1974. The amount
treated as capital gain is taxed at a 20% rate. You can elect this treatment only once for any plan participant, and only
if the plan participant was
born before January 2, 1936.
Complete Part II of Form 4972 to choose the 20% capital gain election.
Figuring the capital gain and ordinary income parts.
Generally, figure the capital gain and ordinary income parts of a lump-sum distribution by using the following formulas.
|
|
|
|
Capital Gain:
|
|
|
Total Taxable Amount
|
|
|
|
x
|
Months of active participation before
1974
|
|
|
Total months of active participation
|
Ordinary Income:
|
|
|
Total Taxable Amount
|
|
|
|
x
|
Months of active participation after
1973
|
|
|
Total months of active participation
|
In figuring the months of active participation before 1974, count as 12 months any part of a calendar year in which
the plan participant actively
participated under the plan. For active participation after 1973, count as one month any part of a calendar month in which
the participant actively
participated in the plan.
The capital gain part should be shown in box 3 of Form 1099-R or other statement given to you by the payer of the
distribution.
Reduction for federal estate tax.
If any federal estate tax (discussed under Survivors and Beneficiaries, later) was paid on the lump-sum distribution, you must decrease
the capital gain by the amount of estate tax applicable to it. Follow the Form 4972 instructions for Part II, line 6, to figure
the part of the estate
tax applicable to the capital gain that is used to reduce the capital gain. If you do not make the capital gain election,
enter on line 18 of Part III
the estate tax attributable to the total lump-sum distribution. For information on how to figure the estate tax attributable
to the lump-sum
distribution, get the instructions for Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, or contact
the administrator of
the decedent's estate.
The 10-year tax option is a special formula used to figure a separate tax on the ordinary income part of a lump-sum distribution.
You pay the tax
only once, for the year in which you receive the distribution, not over the next 10 years. You can elect this treatment only
once for any plan
participant, and only if the plan participant was born before January 2, 1936.
The ordinary income part of the distribution is the amount shown in box 2a of
the Form 1099-R given to you by the payer, minus the amount, if any, shown in box 3. You can also treat the capital gain part
of the distribution (box
3 of Form 1099-R) as ordinary income for the 10-year tax option if you do not choose capital gain treatment for that part.
Complete Part III of Form 4972 to choose the 10-year tax option. You must use
the special Tax Rate Schedule shown in the instructions for Part III to figure the tax.
The following examples show how to figure the separate tax on Form 4972.
Example 1.
Robert C. Smith, who was born in 1935, retired from Crabtree Corporation in 2007. He withdrew the entire amount to his credit
from the company's
qualified pension plan. In December 2007, he received a total distribution of $175,000 (the $25,000 tax-free part of the distribution
consisting of
employee contributions plus the $150,000 taxable part of the distribution consisting of employer contributions and earnings
on all contributions).
The payer gave Robert a Form 1099-R, which shows the capital gain part of the taxable distribution (the part attributable
to participation before
1974) to be $10,000. Robert elects 20% capital gain treatment for this part. Filled-in copies of Robert's Form 1099-R and
Form 4972 follow. He enters
$10,000 on Form 4972, Part II, line 6 and $2,000 ($10,000 × 20%) on Part II, line 7.
The ordinary income part of the taxable distribution is $140,000 ($150,000 minus $10,000). Robert elects to figure the tax
on this part using the
10-year tax option. He enters $140,000 on Form 4972, Part III, line 8. Then he completes the rest of Form 4972 and includes
the tax of $24,270 in the
total on line 44 of his Form 1040.
Example 2.
Mary Brown, who was born in 1935, sold her business in 2007. She withdrew her entire interest in the qualified profit-sharing
plan she had set up
as the sole proprietor.
The cash part of the distribution, $160,000, is all ordinary income and is shown on her Form 1099-R below. She chooses to
figure the tax on this
amount using the 10-year tax option. Mary also received an annuity contract as part of the distribution from the plan. Box
8, Form 1099-R, shows that
the current actuarial value of the annuity was $10,000. She enters these figures on Form 4972 (see page 25).
After completing Form 4972, she includes the tax of $28,070 in the total on Form 1040, line 44.
If you withdraw cash or other assets from a qualified retirement plan in an eligible rollover distribution, you can defer
tax on the distribution
by rolling it over to another qualified retirement plan or a traditional IRA. You do not include the amount rolled over in
your income until you
receive it in a distribution from the recipient plan or IRA without rolling over that distribution. (For information about
rollovers from traditional
IRAs, see chapter 1 of Publication 590.)
If you roll over the distribution to a traditional IRA, you cannot deduct the amount rolled over as an IRA
contribution. When you later withdraw it from the IRA, you cannot use the optional methods discussed earlier under Lump-Sum Distributions
to figure the tax.
Self-employed individuals are generally treated as employees for the rules on the tax treatment
of distributions, including the rules for rollovers.
See Designated Roth accounts, later, for information on rollovers related to those accounts. See also Rollovers to Roth IRAs,
later, for information on rollovers after 2007 from a qualified retirement plan to a Roth IRA.
Qualified retirement plan.
For this purpose, the following plans are qualified retirement plans.
-
A qualified employee plan.
-
A qualified employee annuity.
-
A tax-sheltered annuity plan (403(b) plan).
-
An eligible state or local government section 457 deferred compensation plan.
Eligible rollover distribution.
An eligible rollover distribution is any distribution of all or any part of the balance to your credit in a qualified
retirement plan except:
-
Any of a series of substantially equal distributions paid at least once a year over:
-
Your lifetime or life expectancy,
-
The joint lives or life expectancies of you and your beneficiary, or
-
A period of 10 years or more,
-
A required minimum distribution (discussed later under Tax on Excess Accumulation),
-
Hardship distributions,
-
Corrective distributions of excess contributions or excess deferrals, and any income allocable to these distributions, or
of excess annual
additions and any allocable gains (see Corrective distributions of excess plan contributions, at the beginning of Taxation of
Nonperiodic Payments, earlier),
-
A loan treated as a distribution because it does not satisfy certain requirements either when made or later (such as upon
default), unless
the participant's accrued benefits are reduced (offset) to repay the loan (see Loans Treated as Distributions, earlier),
-
Dividends paid on employer securities, and
-
The cost of life insurance coverage.
In addition, a distribution to the plan participant's beneficiary generally is not treated as an eligible rollover
distribution. However, see
Qualified domestic relations order, Rollover by surviving spouse, and Rollovers by nonspouse beneficiary, later.
Rollover of nontaxable amounts.
You may be able to roll over the nontaxable part of a distribution (such as your after-tax contributions) made to
another qualified retirement plan
that is a qualified employee plan or a 403(b) plan, or to a traditional IRA. The transfer must be made either through a direct
rollover to a qualified
plan or 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover or through a rollover to
a traditional IRA.
If you roll over only part of a distribution that includes both taxable and nontaxable amounts, the amount you roll
over is treated as coming first
from the taxable part of the distribution.
Withholding requirements.
If an eligible rollover distribution is paid to you, the payer must withhold 20% of it. This applies even if you plan
to roll over the distribution
to another qualified retirement plan or to an IRA. However, you can avoid withholding by choosing the direct rollover option,
discussed later. Also,
see Choosing the right option at the end of this discussion.
Exceptions.
An eligible rollover distribution is not subject to withholding to the extent it consists of net unrealized appreciation
from employer securities
that can be excluded from your gross income. (For a discussion of the tax treatment of a distribution of employer securities,
see Figuring the
Taxable Amount under Taxation of Nonperiodic Payments, earlier.)
In addition, withholding from an eligible rollover distribution paid to you is not required if:
-
The distribution and all previous eligible rollover distributions you received during the tax year from the same plan (or,
at the payer's
option, from all your employer's plans) total less than $200, or
-
The distribution consists solely of employer securities, plus cash of $200 or less in lieu of fractional shares.
Direct rollover option.
You can choose to have any part or all of an eligible rollover distribution paid directly to another qualified retirement
plan that accepts
rollover distributions or to a traditional IRA.
There is an automatic rollover requirement for mandatory distributions. A mandatory distribution is a distribution
made without your consent and
before you reach age 62 or normal retirement age, whichever is later. The automatic rollover requirement applies if the distribution
is more than
$1,000 and is an eligible rollover distribution. You can choose to have the distribution paid directly to you or rolled over
directly to your
traditional IRA or another qualified retirement plan. If you do not make this choice, the plan administrator will automatically
roll over the
distribution into an IRA of a designated trustee or issuer.
No tax withheld.
If you choose the direct rollover option, or have an automatic rollover, no tax will be withheld from any part of
the distribution that is directly
paid to the trustee of the other plan. If any part of the eligible rollover distribution is paid to you, the payer must generally
withhold 20% of it
for income tax.
Payment to you option.
If an eligible rollover distribution is paid to you, 20% generally will be withheld for income tax. However, the full
amount is treated as
distributed to you even though you actually receive only 80%. You generally must include in income any part (including the
part withheld) that you do
not roll over within 60 days to another qualified retirement plan or to a traditional IRA.
If you are under age 59½ when a distribution is paid to you, you may have to
pay a 10% tax (in addition to the regular income tax) on the taxable part (including any tax withheld) that you do not roll
over. See Tax on
Early Distributions, later.
Partial rollovers.
If you receive a lump-sum distribution, it may qualify for special tax treatment. See Lump-Sum Distributions, earlier. However, if you
roll over any part of the distribution, the part you keep does not qualify for special tax treatment.
Rolling over more than amount received. If the part of the distribution you want to roll over exceeds (due to the tax withholding) the
amount you actually received, you will have to get funds from some other source (such as your savings or borrowed amounts)
to add to the amount you
actually received.
Example.
You receive an eligible rollover distribution of $10,000 from your employer's qualified employee plan. The payer withholds
$2,000, so you actually
receive $8,000. If you want to roll over the entire $10,000 to postpone including that amount in your income, you will have
to get $2,000 from some
other source to add to the $8,000 you actually received.
If you roll over only $8,000, you must include the $2,000 not rolled over in your income for the distribution year. Also,
you may be subject to the
10% additional tax on the $2,000 if it was distributed to you before you reached age 59½.
Time for making rollover.
You generally must complete the rollover of an eligible rollover distribution paid to you by the 60th day following
the day on which you receive
the distribution from your employer's plan.
The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such
as in the event of a casualty,
disaster, or other event beyond your reasonable control.
Example.
In the previous example, you received the distribution on June 30, 2008. To postpone including it in your income, you must
complete the rollover by
August 29, 2008, the 60th day following June 30.
Frozen deposits.
If an amount distributed to you becomes a frozen deposit in a financial institution during the 60-day period after
you receive it, the rollover
period is extended. An amount is a frozen deposit if you cannot withdraw it because of either:
-
The bankruptcy or insolvency of the financial institution, or
-
A restriction on withdrawals by the state in which the institution is located because of the bankruptcy or insolvency (or
threat of it) of
one or more financial institutions in the state.
The 60-day rollover period is extended by the period for which the amount is a frozen deposit and does not end earlier
than 10 days after the
amount is no longer a frozen deposit.
Retirement bonds.
If you redeem retirement bonds purchased under a qualified bond purchase plan, you can roll over the proceeds that
exceed your basis tax free into
an IRA or qualified employer plan. Subsequent distributions of those proceeds, however, do not qualify for the 10-year tax
option or capital gain
treatment.
Annuity contracts.
If an annuity contract was distributed to you by a qualified retirement plan, you can roll over an amount paid under
the contract that is otherwise
an eligible rollover distribution. For example, you can roll over a single sum payment you receive upon surrender of the contract
to the extent it is
taxable and is not a required minimum distribution.
Rollovers of property.
To roll over an eligible rollover distribution of property, you must either roll over the actual property distributed
or sell it and roll over the
proceeds. You cannot keep the distributed property and roll over cash or other property.
If you sell the distributed property and roll over all the proceeds, no gain or loss is recognized on the sale. The
sale proceeds (including any
portion representing an increase in value) are treated as part of the distribution and are not included in your gross income.
If you roll over only part of the proceeds, you are taxed on the part you keep. You must allocate the proceeds you
keep between the part
representing ordinary income from the distribution (its value upon distribution) and the part representing gain or loss from
the sale (its change in
value from its distribution to its sale).
Example 1.
On September 4, 2007, Paul received an eligible rollover distribution from his employer's noncontributory qualified employee
plan of $50,000 in
nonemployer stock. On September 24, 2007, he sold the stock for $60,000. On October 3, 2007, he contributed $60,000 cash to
a traditional IRA. Paul
does not include either the $50,000 eligible rollover distribution or the $10,000 gain from the sale of the stock in his income.
The entire $60,000
rolled over will be ordinary income when he withdraws it from his IRA.
Example 2.
The facts are the same as in Example 1, except that Paul sold the stock for $40,000 and contributed $40,000 to the IRA. Paul
does not include the
$50,000 eligible rollover distribution in his income and does not deduct the $10,000 loss from the sale of the stock. The
$40,000 rolled over will be
ordinary income when he withdraws it from his IRA.
Example 3.
The facts are the same as in Example 1, except that Paul rolled over only $45,000 of the $60,000 proceeds from the sale of
the stock. The $15,000
proceeds he did not roll over includes part of the gain from the stock sale. Paul reports $2,500 ($10,000/$60,000 × $15,000)
as capital gain and
$12,500 ($50,000/$60,000 × $15,000) as ordinary income.
Example 4.
The facts are the same as in Example 2, except that Paul rolled over only $25,000 of the $40,000 proceeds from the sale of
the stock. The $15,000
proceeds he did not roll over includes part of the loss from the stock sale. Paul reports $3,750 ($10,000/$40,000 × $15,000)
capital loss and
$18,750 ($50,000/$40,000 × $15,000) ordinary income.
Property and cash distributed.
If both cash and property were distributed and you did not roll over the entire distribution, you may designate what
part of the rollover is
allocable to the cash distribution and what part is allocable to the proceeds from the sale of the distributed property. If
the distribution included
an amount that is not taxable (other than the net unrealized appreciation in employer securities) as well as an eligible rollover
distribution, you
may also designate what part of the nontaxable amount is allocable to the cash distribution and what part is allocable to
the property. Your
designation must be made by the due date for filing your tax return, including extensions. You cannot change your designation
after that date. If you
do not make a designation on time, the rollover amount or the nontaxable amount must be allocated on a ratable basis.
Qualified domestic relations order (QDRO).
You may be able to roll over tax free all or part of a distribution from a qualified retirement plan that you receive
under a QDRO. (See
Qualified domestic relations order (QDRO) under General Information, earlier.) If you receive the distribution as an employee's
spouse or former spouse (not as a nonspousal beneficiary), the rollover rules apply to you as if you were the employee.
Rollover by surviving spouse.
You may be able to roll over tax free all or part of a distribution from a qualified retirement plan you receive as
the surviving spouse of a
deceased employee. The rollover rules apply to you as if you were the employee. You can roll over the distribution into a
qualified retirement plan or
a traditional IRA.
A distribution paid to a beneficiary other than the employee's surviving spouse is generally not an eligible rollover
distribution. However, see
Rollovers by nonspouse beneficiary, next.
Rollovers by nonspouse beneficiary.
If you are a designated beneficiary (other than a surviving spouse) of a deceased employee, you may be able to roll
over tax free all or a portion
of a distribution you receive from an eligible retirement plan of the employee. The distribution must be a direct trustee-to-trustee
transfer to your
IRA that was set up to receive the distribution. The transfer will be treated as an eligible rollover distribution and the
receiving plan will be
treated as an inherited IRA. For information on inherited IRAs, see Publication 590.
How to report.
Enter the total distribution (before income tax or other deductions were withheld) on Form 1040, line 16a; Form
1040A, line 12a; or Form 1040NR, line 17a. This amount should be shown in box 1 of Form 1099-R. From this amount, subtract
any contributions (usually
shown in box 5 of Form 1099-R) that were taxable to you when made. From that result, subtract the amount that was rolled over
either directly or
within 60 days of receiving the distribution. Enter the remaining amount, even if zero, on Form 1040, line 16b; Form 1040A,
line 12b; or Form 1040NR,
line 17b. Also, write "Rollover" next to the line.
Written explanation to recipients.
The administrator of a qualified retirement plan must, within a reasonable period of time before making an eligible
rollover distribution, provide
you with a written explanation. It must tell you about all of the following.
-
Your right to have the distribution paid tax free directly to another qualified retirement plan or to a traditional IRA.
-
The requirement to withhold tax from the distribution if it is not directly rolled over.
-
The nontaxability of any part of the distribution that you roll over within 60 days after you receive the distribution.
-
Other qualified retirement plan rules that apply, including those for lump-sum distributions, alternate payees, and cash or
deferred
arrangements.
-
How the distribution rules of the plan to which you roll over the distribution may differ from the rules that apply to the
plan making the
distribution in their restrictions and tax consequences.
Reasonable period of time.
The plan administrator must provide you with a written explanation no earlier than 90 days and no later than 30 days
before the distribution is
made. However, you can choose to have a distribution made less than 30 days after the explanation is provided as long as the
following two
requirements are met.
-
You must have the opportunity to consider whether or not you want to make a direct rollover for at least 30 days after the
explanation is
provided.
-
The information you receive must clearly state that you have the right to have 30 days to make a decision.
Contact the plan administrator if you have any questions regarding this information.
Designated Roth accounts.
You can roll over an eligible rollover distribution from a designated Roth account only into another designated Roth
account or a Roth IRA. If you
want to roll over the part of the distribution that is not included in income, you must make a direct rollover of the entire
distribution (see
Direct rollover option, earlier) or you can roll over the entire amount (or any portion) to a Roth IRA.
A direct rollover from a designated Roth account under a section 401(k) plan must be rolled over to another section
401(k) plan that agrees to
separately account for the amount not included in income. A direct rollover from a designated Roth account under a section
403(b) plan must be rolled
over to another section 403(b) plan that agrees to separately account for the amount not included in income.
A qualified distribution from a designated Roth account is not includible in income. (A qualified distribution is
defined earlier in the discussion
of designated Roth accounts under Taxation of Periodic Payments). Generally, you cannot have a qualified distribution within the 5-tax-year
period beginning with the first tax year for which the participant made a designated Roth contribution to the plan. If a direct
rollover is made from
a designated Roth account under another plan, the 5-tax-year period of participation begins on the first day of your tax year
in which you first had
designated Roth contributions made to either the account making the distribution or receiving the distribution, whichever
was earlier.
If you roll over only part of an eligible rollover distribution that is not a qualified distribution and not paid
as a direct rollover
contribution, the part rolled over is considered to be first from the income portion of the distribution.
Example.
You receive an eligible rollover distribution that is not a qualified distribution from your designated Roth account. The
distribution consists of
$11,000 (investment) and $3,000 (income earned). Within 60 days of receipt, you roll over $7,000 into a Roth IRA. The $7,000
consists of $3,000 of
income and $4,000 of investment. Since you rolled over the part of the distribution that could be included in gross income
(income earned), none of
the distribution is included in gross income.
Rollovers to Roth IRAs.
After 2007, you can roll over distributions directly from a qualified retirement plan to a Roth IRA if, for the tax
year of the distribution, both
of the following requirements are met.
-
Your modified adjusted gross income for Roth IRA purposes (explained in chapter 2 of Publication 590) is not more than $100,000.
-
You are not a married individual filing a separate return.
You must include in your gross income distributions from a qualified retirement plan that you would have had to include in
income if you had
not rolled them over into a Roth IRA. You do not include in gross income any part of a distribution from a qualified retirement
plan that is a return
of contributions to the plan that were taxable to you when paid. In addition, the 10% tax on early distributions does not
apply.
Any amount rolled over to a Roth IRA is subject to the same rules for converting a traditional IRA into a Roth IRA.
For more information, see
Converting From Any Traditional IRA Into a Roth IRA in chapter 1 of Publication 590.
Choosing the right option.
Table 1 may help you decide which distribution option to choose.
Carefully compare the effects of each option.
To discourage the use of pension funds for purposes other than normal retirement, the law imposes additional taxes on early
distributions of those
funds and on failures to withdraw the funds timely. Ordinarily, you will not be subject to these taxes if you roll over all
early distributions you
receive, as explained earlier, and begin drawing out the funds at a normal retirement age, in reasonable amounts over your
life expectancy. These
special additional taxes are the taxes on:
These taxes are discussed in the following sections.
If you must pay either of these taxes, report them on Form 5329. However, you do
not have to file Form 5329 if you owe only the tax on early distributions and your Form 1099-R correctly shows a “1” in box 7. Instead, enter 10%
of the taxable part of the distribution on Form 1040, line 60 and write “No” under the heading “Other Taxes” to the left of line 60. If you
file Form 1040NR, enter 10% of the taxable part of the distribution on line 55 and write “No” on the dotted line next to line 55.
Even if you do not owe any of these taxes, you may have to complete Form 5329 and attach it to your Form 1040 or Form 1040NR.
This applies if you
meet an exception to the tax on early distributions but box 7 of your Form 1099-R does not indicate an exception.
Tax on Early Distributions
Most distributions (both periodic and nonperiodic) from qualified retirement plans and nonqualified annuity contracts made
to you before you reach
age 59½ are subject to an additional tax of 10%. This tax applies to the part of the distribution that you must include in
gross
income. It does not apply to any part of a distribution that is tax free, such as amounts that represent a return of your
cost or that were rolled
over to another retirement plan. It also does not apply to corrective distributions of excess deferrals, excess contributions,
or excess aggregate
contributions (discussed earlier under Taxation of Nonperiodic Payments).
For this purpose, a qualified retirement plan is:
-
A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under Internal Revenue Code section
401(k)),
-
A qualified employee annuity plan,
-
A tax-sheltered annuity plan (403(b) plan), or
-
An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable
to amounts
the plan received in a direct transfer or rollover from one of the other plans listed here or an IRA).
5% rate on certain early distributions from deferred annuity contracts.
If an early withdrawal from a deferred annuity is otherwise subject to the 10% additional tax, a 5% rate may apply
instead. A 5% rate applies to
distributions under a written election providing a specific schedule for the distribution of your interest in the contract
if, as of March 1, 1986,
you had begun receiving payments under the election. On line 4 of Form 5329, multiply the line 3 amount by 5% instead of 10%.
Attach an explanation to
your return.
Exceptions to tax.
Certain early distributions are excepted from the early distribution tax. If the
payer knows that an exception applies to your early distribution, distribution code “ 2,” “ 3,” or “ 4” should be shown in box 7 of your
Form 1099-R and you do not have to report the distribution on Form 5329. If an exception applies but distribution code “ 1” (early distribution,
no known exception) is shown in box 7, you must file Form 5329. Enter the taxable amount of the distribution shown in box
2a of your Form 1099-R on
line 1 of Form 5329. On line 2, enter the amount that can be excluded and the exception number shown in the Form 5329 instructions.
If distribution code “ 1” is incorrectly shown on your Form 1099-R for a distribution received when you were age 59½ or older,
include that distribution on Form 5329. Enter exception number “ 12” on line 2.
General exceptions.
The tax does not apply to distributions that are:
-
Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy)
or the joint
lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments
must begin after
separation from service). See Substantially equal periodic payments, later,
-
Made because you are totally and permanently disabled, or
-
Made on or after the death of the plan participant or contract holder.
Additional exceptions for qualified retirement plans.
The tax does not apply to distributions that are:
-
From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age
55 (age 50 for
qualified public safety employees),
-
From a qualified retirement plan (other than an IRA) to an alternate payee under a qualified domestic relations order,
-
From a qualified retirement plan to the extent you have deductible medical expenses (medical expenses that exceed 7.5% of
your adjusted
gross income), whether or not you itemize your deductions for the year,
-
From an employer plan under a written election that provides a specific schedule for distribution of your entire interest
if, as of March 1,
1986, you had separated from service and had begun receiving payments under the election,
-
From an employee stock ownership plan for dividends on employer securities held by the plan,
-
From a qualified retirement plan due to an IRS levy of the plan, or
-
From elective deferral accounts under 401(k) or 403(b) plans, or similar arrangements, that are qualified reservist distributions.
Qualified public safety employees.
If you are a qualified public safety employee, distributions made from a governmental defined benefit pension plan
are not subject to the
additional tax on early distributions. You are a qualified public safety employee if you provided police protection, firefighting
services, or
emergency medical services for a state or municipality, and you separated from service after you attained age 50.
Qualified reservist distributions.
A qualified reservist distribution is not subject to the additional tax on early distributions. A qualified reservist
distribution is a
distribution (a) from elective deferrals under a section 401(k) or 403(b) plan, or a similar arrangement, (b) to an individual
ordered or called to
active duty (because he or she is a member of a reserve component) for a period of more than 179 days or for an indefinite
period, and (c) made during
the period beginning on the date of the order or call and ending at the close of the active duty period. You must be ordered
or called to active duty
after September 11, 2001, and before December 31, 2007.
If you received a qualified reservist distribution before 2006 and paid the 10% additional tax, you can claim a refund
of that tax by filing Form
1040X to amend your return for the year not otherwise barred by a statute of limitations in which you received the qualified
reservist distribution.
Write “ ACTIVE DUTY RESERVIST” at the top of the form and show the date that you were called to active duty, the amount of the qualified
distribution, and the amount of the 10% additional tax paid in Part II.
You can choose to re-contribute part or all of the distributions to an IRA. Generally, these additional contributions must
be made within 2 years
after your active-duty period ends. However, if your active duty period ended before August 17, 2006, you will have until
August 17, 2008, to make
these special contributions. You cannot take a deduction for these contributions. However, the normal dollar limitations for
contributions to IRAs do
not apply to these special contributions, and you can make regular contributions to your IRA, up to the amount otherwise allowable.
Additional exceptions for nonqualified annuity contracts.
The tax does not apply to distributions that are:
-
From a deferred annuity contract to the extent allocable to investment in the contract before August 14, 1982,
-
From a deferred annuity contract under a qualified personal injury settlement,
-
From a deferred annuity contract purchased by your employer upon termination of a qualified employee plan or qualified employee
annuity plan
and held by your employer until your separation from service, or
-
From an immediate annuity contract (a single premium contract providing substantially equal annuity payments that start within
one year from
the date of purchase and are paid at least annually).
Substantially equal periodic payments.
Payments are substantially equal periodic payments if they are made in accordance with one of the following methods.
-
Required minimum distribution method. Under this method, the resulting annual payment is redetermined for each year.
-
Fixed amortization method. Under this method, the resulting annual payment is determined once for the first distribution year
and remains
the same amount for each succeeding year.
-
Fixed annuitization method. Under this method, the resulting annual payment is determined once for the first distribution
year and remains
the same amount for each succeeding year.
For information on these methods, see Revenue Ruling 2002-62, which is on page 710 of Internal Revenue Bulletin 2002-42 at
www.irs.gov/pub/irs-irbs/irb02-42.pdf.
A change from method (2) or (3) to method (1) is not treated as a modification to which the recapture tax (discussed next)
applies.
Recapture tax for changes in distribution method under equal payment exception.
An early distribution recapture tax may apply if, before you reach age 59½, the distribution method under the equal
periodic payment
exception changes (for reasons other than your death or disability). The tax applies if the method changes from the method
requiring equal payments to
a method that would not have qualified for the exception to the tax. The recapture tax applies to the first tax year to which
the change applies. The
amount of tax is the amount that would have been imposed had the exception not applied, plus interest for the deferral period.
The recapture tax also applies after you reach age 59½ if your payments under a distribution
method that qualifies for the exception are modified within 5 years of the date of the first payment. In that case, the tax
applies only to payments
distributed before you reach age 59½.
Report the recapture tax and interest on line 4 of Form 5329. Attach an explanation to the form. Do not write the
explanation next to the line or
enter any amount for the recapture on lines 1 or 3 of the form.
Tax on Excess Accumulation
To make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries
after your death, the
payments that you receive from qualified retirement plans must begin no later than your required beginning date (defined later).
The payments each
year cannot be less than the minimum required distribution.
If the actual distributions to you in any year are less than the minimum required distribution for that year, you are subject
to an additional tax.
The tax equals 50% of the part of the required minimum distribution that was not distributed.
For this purpose, a qualified retirement plan includes:
-
A qualified employee plan,
-
A qualified employee annuity plan,
-
An eligible section 457 deferred compensation plan, or
-
A tax-sheltered annuity plan (403(b) plan) (for benefits accruing after 1986).
Waiver.
The tax may be waived if you establish that the shortfall in distributions was due to reasonable error and that reasonable
steps are being taken to
remedy the shortfall. If you believe you qualify for this relief, you must file Form 5329 and attach a letter of explanation.
In Part VIII of that
form, enter “ RC” and the amount you want waived in parentheses on the dotted line next to line 52. Subtract this amount from the total shortfall
you figured without regard to the waiver and enter the result on line 52.
State insurer delinquency proceedings.
You might not receive the minimum distribution because assets are invested in a contract issued by an insurance company
in state insurer
delinquency proceedings. If your payments are reduced below the minimum because of these proceedings, you should contact your
plan administrator.
Under certain conditions, you will not have to pay the 50% excise tax.
Required beginning date.
Unless the rule for 5% owners applies, you generally must begin to receive distributions from your qualified retirement
plan by April 1 of the year
that follows the later of:
-
The calendar year in which you reach age 70½, or
-
The calendar year in which you retire from employment with the employer maintaining the plan.
However, your plan may require you to begin to receive distributions by April 1 of the year that follows the year in which
you reach age 701/, even if you have not retired.
5% owners.
If you are a 5% owner, you must begin to receive distributions from the plan by April 1 of the year that follows the
calendar year in which you
reach age 70½. This rule does not apply if your retirement plan is a government or church plan.
You are a 5% owner if, for the plan year ending in the calendar year in which you reach age 70½, you own (or are considered
to own
under section 318 of the Internal Revenue Code) more than 5% of the outstanding stock (or more than 5% of the total voting
power of all stock) of the
employer, or more than 5% of the capital or profits interest in the employer.
Age 70½.
You reach age 70½ on the date that is 6 calendar months after the date of your 70th birthday. For example, if your
70th birthday was
on June 30, 2007, you reached age 70½ on December 30, 2007. If your 70th birthday was on July 1, 2007, you reached age 70½
on January 1, 2008.
Required distributions.
By the required beginning date, you must either:
-
Receive your entire interest in the plan (for a tax-sheltered annuity, your entire benefit accruing after 1986), or
-
Begin receiving periodic distributions in annual amounts calculated to distribute your entire interest (for a tax-sheltered
annuity, your
entire benefit accruing after 1986) over your life or life expectancy or over the joint lives or joint life expectancies of
you and a designated
beneficiary (or over a shorter period).
After the starting year for periodic distributions, you must receive at least the minimum required distribution for
each year by December 31 of
that year. (The starting year is the year in which you reach age 70½ or retire, whichever applies in determining your required
beginning date.) If no distribution is made in your starting year, the minimum required distributions for 2 years must be
made the following year (one
by April 1 and one by December 31).
Example.
You retired under a qualified employee plan in 2006. You reached age 70½ on August 20, 2007. For 2007 (your starting year),
you must
receive a minimum amount from your retirement plan by April 1, 2008. You must receive the minimum required distribution for
2008 by December 31, 2008.
Distributions after the employee's death.
If the employee was receiving periodic distributions before his or her death, any payments not made as of the time
of death must be distributed at
least as rapidly as under the distribution method being used at the date of death.
If the employee dies before the required beginning date, the entire account must be distributed under one of the following
rules.
-
Rule 1. The distribution must be completed by December 31 of the fifth year following the year of the employee's death.
-
Rule 2. The distribution must be made in annual amounts over the life or life expectancy of the designated beneficiary.
The terms of the plan may determine which of these two rules applies. If the plan permits the employee or the beneficiary
to choose the rule that
applies, this choice must be made by the earliest date a distribution would be required under either of the rules. Generally,
this date is December 31
of the year following the year of the employee's death.
If the employee or the beneficiary did not choose either rule and the plan does not specify the one that applies,
distribution must be made under
Rule 2 if the employee has a designated beneficiary and under Rule 1 if the employee does not have a designated beneficiary.
Distributions under Rule 2 generally must begin by December 31 of the year following the year of the employee's death.
However, if the surviving
spouse is the beneficiary, distributions need not begin until December 31 of the year the employee would have reached age
70½, if
later.
If the surviving spouse is the designated beneficiary and distributions are to be made under Rule 2,
a special rule applies if the spouse dies after the employee but before distributions are required to begin. In this case,
distributions may be made
to the spouse's beneficiary under either Rule 1 or Rule 2, as though the beneficiary were the employee's beneficiary and the
employee died on the
spouse's date of death. However, if the surviving spouse remarries after the employee's death and the new spouse is designated
as the spouse's
beneficiary, this special rule applicable to surviving spouses does not apply to the new spouse.
Minimum distributions from an annuity plan.
Special rules may apply if you receive distributions from your retirement plan in the form of an annuity. Your plan
administrator should be able to
give you information about these rules.
Minimum distributions from an individual account plan.
Your plan administrator should be able to give you information about how the amount of your required distribution
was figured.
If there is an account balance to be distributed from your plan (not as an annuity), your plan administrator must
figure the minimum amount that
must be distributed from the plan each year.
What types of installments are allowed?
The minimum amount that must be distributed for any year may be made in a series of installments (for example, monthly
or quarterly) as long as the
total payments for the year made by the date required are not less than the minimum amount required for the year.
More than minimum.
Your plan can distribute more in any year than the minimum amount required for that year but, if it does, you will
not receive credit for the
additional amount in determining the minimum amount required for future years. However, any amount distributed in your starting
year will be credited
toward the amount required to be distributed by April 1 of the following year.
Combining multiple accounts to satisfy the minimum distribution requirements.
Generally, the required minimum distribution must be figured separately for each account. Each qualified employee
retirement plan and qualified
annuity plan must be considered individually in satisfying its distribution requirements. However, if you have more than one
tax-sheltered annuity
account, you can total the required distributions and then satisfy the requirement by taking distributions from any one (or
more) of the tax-sheltered
annuities.
Survivors and Beneficiaries
Generally, a survivor or beneficiary reports pension or annuity income in the same way the plan participant would have reported
it. However, some
special rules apply, and they are covered elsewhere in this publication as well as in this section.
Estate tax deduction.
You may be entitled to a deduction for estate tax if you receive amounts included in your income as income in respect
of a decedent under a joint
and survivor annuity that was included in the decedent's estate. You can deduct the part of the total estate tax that was
based on the annuity,
provided that the decedent died after his or her annuity starting date. (For details, see section 1.691(d)-1 of the regulations.)
Deduct it in equal
amounts over your remaining life expectancy.
If the decedent died before the annuity starting date of a deferred annuity contract and you receive a death benefit
under that contract, the
amount you receive (either in a lump sum or as periodic payments) in excess of the decedent's cost is included in your gross
income as income in
respect of a decedent for which you may be able to claim an estate tax deduction.
You can take the estate tax deduction as an itemized deduction on Schedule A, Form 1040. This deduction is not subject
to the
2%-of-adjusted-gross-income limit on miscellaneous deductions. See Publication 559, Survivors, Executors, and Administrators,
for more information on
the estate tax deduction.
Survivors of employees.
Distributions the beneficiary of a deceased employee gets may be accrued salary payments; distributions from employee
profit-sharing, pension,
annuity, or stock bonus plans; or other items. Some of these should be treated separately for tax purposes. The treatment
of these distributions
depends on what they represent.
Salary or wages paid after the death of the employee are usually the beneficiary's ordinary income. If you are a beneficiary
of an employee who was
covered by any of the retirement plans mentioned, you can exclude from income nonperiodic distributions received that totally
relieve the payer from
the obligation to pay an annuity. The amount that you can exclude is equal to the deceased employee's investment in the contract
(cost).
If you are entitled to receive a survivor annuity on the death of an employee, you can exclude part of each annuity
payment as a tax-free recovery
of the employee's investment in the contract. You must figure the tax-free part of each payment using the method that applies
as if you were the
employee. For more information, see Taxation of Periodic Payments, earlier.
Survivors of retirees.
Benefits paid to you as a survivor under a joint and survivor annuity must be included in your gross income. Include
them in income in the same way
the retiree would have included them in gross income. See Partly Taxable Payments under Taxation of Periodic Payments, earlier.
If the retiree reported the annuity under the Three-Year Rule and recovered all of the cost tax free, your survivor
payments are fully taxable.
If the retiree was reporting the annuity under the General Rule, you must apply the same exclusion
percentage to your initial survivor annuity payment called for in the contract. The resulting tax-free amount will then remain
fixed for the initial
and future payments. Increases in the survivor annuity are fully taxable. See Publication 939 for more information on the
General Rule.
If the retiree was reporting the annuity under the Simplified Method, the part of each payment that
is tax free is the same as the tax-free amount figured by the retiree at the annuity starting date. This amount remains fixed
even if the annuity
payments are increased or decreased. See Simplified Method under Taxation of Periodic Payments, earlier.
Guaranteed payments.
If you receive guaranteed payments as the decedent's beneficiary under a life annuity contract, do not include any
amount in your gross income
until your distributions plus the tax-free distributions received by the life annuitant equal the cost of the contract. All
later distributions are
fully taxable. This rule does not apply if it is possible for you to collect more than the guaranteed amount. For example,
it does not apply to
payments under a joint and survivor annuity.
The following discussions cover many of the special rules regarding withdrawals, repayments, and loans from certain retirement
plans. These rules
provided relief to taxpayers who suffered an economic loss as a result of Hurricane Katrina, Rita, or Wilma and applied to
distributions received
before 2007 as qualified hurricane distributions (defined later). However, they may still affect taxpayers after 2006. For
example, they explain how
much of a qualified distribution may have to be included in income after 2006 and when an amended return must be filed to
reduce the amount of a
qualified distribution previously included in income as a result of repayments made after 2006.
If you received a qualified hurricane distribution, the taxable amount is figured in the same manner as other distributions
(see the sections on
Cost, Taxation of Periodic Payments, and Taxation of Nonperiodic Payments, earlier). However, the distribution is
included in income ratably over 3 years beginning with the year you received the distribution, unless you elected to report
the entire amount in the
year of distribution. You can repay the distribution and not be taxed on the distribution. See Qualified Hurricane Distributions, later.
Form 8915, Qualified Hurricane Retirement Plan Distributions and Repayments, is used to report repayments of qualified hurricane
distributions and
to figure the taxable amount of your qualified hurricane distributions.
For information on other tax provisions related to these hurricanes, see Publication 4492, Information for Taxpayers Affected
by Hurricanes
Katrina, Rita, and Wilma.
Qualified Hurricane Distributions
If you received a qualified hurricane distribution, you must include it in your income in equal amounts over 3 years. For
example, if you received
a $60,000 qualified hurricane distribution in 2006, you had to include $20,000 in your income in 2006 and would include in
income the same amount in
2007 and 2008. However, you could have elected to include the entire distribution in your income in the year it was received.
A qualified hurricane distribution was any distribution you received from an eligible retirement plan if all of the following
conditions applied.
-
The distribution was made:
-
After August 24, 2005, and before January 1, 2007, for Hurricane Katrina.
-
After September 22, 2005, and before January 1, 2007, for Hurricane Rita.
-
After October 22, 2005, and before January 1, 2007, for Hurricane Wilma.
-
Your main home was located in a qualified hurricane disaster area listed below on the date shown for that area.
-
August 28, 2005, for the Hurricane Katrina disaster area. For this purpose, the Hurricane Katrina disaster area included the
states of
Alabama, Florida, Louisiana, and Mississippi.
-
September 23, 2005, for the Hurricane Rita disaster area. For this purpose, the Hurricane Rita disaster area included the
states of
Louisiana and Texas.
-
October 23, 2005, for the Hurricane Wilma disaster area. For this purpose, the Hurricane Wilma disaster area included the
state of
Florida.
-
You sustained an economic loss because of Hurricane Katrina, Rita, or Wilma and your main home was in that hurricane disaster
area on the
date shown in item (2) for that hurricane. Examples of an economic loss included, but were not limited to (a) loss, damage
to, or destruction of real
or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; (b) loss related to displacement
from your home; or (c)
loss of livelihood due to temporary or permanent layoffs.
If you met all these conditions, you could generally have designated any distribution (including periodic payments and required
minimum
distributions) from an eligible retirement plan as a qualified hurricane distribution, regardless of whether the distribution
was made on account of
Hurricane Katrina, Rita, or Wilma. Qualified hurricane distributions were permitted without regard to your need or the actual
amount of your economic
loss.
A reduction or offset (before 2007 and after August 24, 2005, for Katrina; after September 22, 2005, for Rita; or after October
22, 2005, for
Wilma) of your account balance in an eligible retirement plan to repay a loan could also have been designated as a qualified
hurricane distribution.
Eligible retirement plan.
An eligible retirement plan could have been any of the following.
-
A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan).
-
A qualified annuity plan.
-
A tax-sheltered annuity contract.
-
A governmental section 457 deferred compensation plan.
-
A traditional, SEP, SIMPLE, or Roth IRA.
For more information, including information about a distribution limit and a definition of main home, see the Form 8915 instructions.
Repayment of Qualified Hurricane Distributions
Most qualified hurricane distributions are eligible for repayment to an eligible retirement plan. Payments received as a beneficiary
(other than a
surviving spouse), periodic payments (other than from IRAs), and required minimum distributions are not eligible for repayment.
Periodic payments, for
this purpose, are payments that are for (a) a period of 10 years or more, (b) your life or life expectancy, or (c) the joint
lives or joint life
expectancies of you and your beneficiary. For distributions eligible for repayment, you have 3 years from the day after the
date you received the
distribution to repay all or part to any plan, annuity, or IRA to which a rollover can be made. Within the time allowed, you
may make as many
repayments as you choose. The total amount repaid cannot be more than the amount of your qualified hurricane distributions.
Amounts repaid are treated
as a qualified rollover and are not included in income. The way you report repayments depends on whether you reported the
distributions under the
3-year ratable method, or you elected to report the distributions in the year of distribution.
Repayment of distributions if reporting under the 1-year election.
If you elected to include all of your qualified hurricane distributions received in a year in income for that year
and then repay any portion of
the distributions during the allowable 3-year period, the amount repaid will reduce the amount included in income for the
year of distribution. If the
repayment is made after the due date (including extensions) for your return for the year of distribution, you will need to
file a revised Form 8915
with an amended return. See Amending Form 8915, later.
Example.
Maria received a $15,000 qualified hurricane distribution on January 10, 2006, from a section 457(b) plan. She elected out
of the 3-year ratable
method for reporting distributions on Form 8915 and included the entire $15,000 in gross income for 2006. On December 31,
2007, she repays $15,000 to
the plan. She must file an amended return for 2006 to reduce her gross income by the $15,000 repayment amount and a revised
Form 8915 to report the
repayment.
Repayment of distributions if reporting under the 3-year ratable method.
If you are reporting the distribution in income ratably over the 3-year period and you repay any portion of the distribution
to an eligible
retirement plan before filing your 2007 tax return by the due date (including extensions) for that return, the repayment will
reduce the portion of
the distribution that is included in income in 2007. If you repay a portion after the due date (including extensions) for
filing your 2007 return, the
repayment will reduce the portion of your distribution that is includible on your 2008 return. If, during a year in the 3-year
ratable period, you
repay more than is otherwise includible in income for that year, the excess may be carried forward or back to reduce the amount
included in income for
that year.
Example.
John received a $90,000 qualified hurricane distribution from his pension plan on November 15, 2006. He did not elect to include
the entire
distribution in his 2006 income. Without any repayments, he had to include $30,000 of the distribution in income on his 2006
return and would include
in income the same amount on his 2007 and 2008 returns. On November 8, 2007, John repays $45,000 to an eligible retirement
plan. He makes no other
repayments during the allowable 3-year period. John may report the distribution and repayment in either of the following ways.
-
Report $0 in income on his 2007 return, and carry the $15,000 excess repayment ($45,000 - $30,000) forward to 2008 and reduce
the amount
reported in that year to $15,000, or
-
Report $0 in income on his 2007 return, file an amended return for 2006 to reduce the amount previously included in income
to $15,000
($30,000 - $15,000), and report $30,000 on his 2008 return.
If, after filing your original return, you make a repayment, the repayment may reduce the amount of your qualified hurricane
distributions that
were previously included in income. Depending on when a repayment is made, you may need to file an amended tax return to refigure
your taxable income.
If you make a repayment by the due date of your original return (including extensions), include the repayment on your amended
2007 Form 8915.
If you make a repayment after the due date of your original return (including extensions), include it on your amended Form
8915 for 2005, 2006, or
2007 only if either of the following apply.
-
You elected to include all of your qualified hurricane distributions in income in the year of the distributions (not over
3 years) on your
original return.
-
The amount of the repayment exceeds the portion of the qualified hurricane distributions that are includible in income for
2008 and you
choose to carry the excess back to your 2007 (or if applicable, 2005 or 2006) tax return.
File Form 1040X to amend a return you have already filed. Generally, Form 1040X must be filed within 3 years after the date
the original return was
filed, or within 2 years after the date the tax was paid, whichever is later.
Loans From Qualified Employer Plans
If your main home was in the Hurricane Katrina, Rita, or Wilma disaster area and you suffered an economic loss because of
the relevant hurricane,
the $50,000 maximum limit for distributions treated as loans from employer plans was increased to $100,000. In addition, any
payments on new or
existing loans from employer plans due before January 1, 2007, may have been suspended for one year by the plan administrator.
For more information on
plan loans, see Loans Treated as Distributions, earlier. To qualify for these provisions, your main home had to be in the disaster area on
the following date.
-
Hurricane Katrina, August 28, 2005.
-
Hurricane Rita, September 23, 2005.
-
Hurricane Wilma, October 23, 2005.
Higher loan limit.
For a qualified individual, the higher loan limit applied to loans received during the following period.
-
Hurricane Katrina, after September 23, 2005, and before January 1, 2007.
-
Hurricane Rita, after December 20, 2005, and before January 1, 2007.
-
Hurricane Wilma, after December 20, 2005, and before January 1, 2007.
In addition to the $100,000 limit, the limit based on 50% of your vested accrued benefit was increased to 100% of
that benefit.
Suspension of payments.
For a qualified individual, the 1-year suspension for loan repayments applied to payments due during the following
period.
-
Hurricane Katrina, after August 24, 2005, and before January 1, 2007.
-
Hurricane Rita, after September 22, 2005, and before January 1, 2007.
-
Hurricane Wilma, after October 22, 2005, and before January 1, 2007.
You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from
the IRS in several
ways. By selecting the method that is best for you, you will have quick and easy access to tax help.
Contacting your Taxpayer Advocate.
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers
who are experiencing economic
harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that
an IRS system or
procedure is not working as it should.
You can contact the TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059
to see if you are eligible for
assistance. You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your
local telephone directory
and in Publication 1546, Taxpayer Advocate Service - Your Voice at the IRS. You can file Form 911, Request for Taxpayer Advocate
Service
Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. For more
information, go to
www.irs.gov/advocate.
Taxpayer Advocacy Panel (TAP).
The TAP listens to taxpayers, identifies taxpayer issues, and makes suggestions for improving IRS services and customer
satisfaction. If you have
suggestions for improvements, contact the TAP, toll free at 1-888-912-1227 or go to
www.improveirs.org.
Low Income Taxpayer Clinics (LITCs).
LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies
with the IRS for free or for
a nominal charge. The clinics also provide tax education and outreach for taxpayers with limited English proficiency or who
speak English as a second
language. Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area. It is available
at
www.irs.gov or at your local IRS office.
Free tax services.
To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. It contains a list of
free tax publications and
describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics.
Accessible versions of IRS published products are available on request in a variety of alternative formats for people
with disabilities.
Internet. You can access the IRS website at
www.irs.gov 24 hours a day, 7 days a week to:
-
E-file your return. Find out about commercial tax preparation and e-file services available free to eligible
taxpayers.
-
Check the status of your 2007 refund. Click on Where's My Refund. Wait at least 6 weeks from the date you filed your return (3
weeks if you filed electronically). Have your 2007 tax return available because you will need to know your social security
number, your filing status,
and the exact whole dollar amount of your refund.
-
Download forms, instructions, and publications.
-
Order IRS products online.
-
Research your tax questions online.
-
Search publications online by topic or keyword.
-
View Internal Revenue Bulletins (IRBs) published in the last few years.
-
Figure your withholding allowances using the withholding calculator online at
www.irs.gov/individuals.
-
Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant.
-
Sign up to receive local and national tax news by email.
-
Get information on starting and operating a small business.
Phone. Many services are available by phone.
-
Ordering forms, instructions, and publications. Call 1-800-829-3676 to order current-year forms, instructions, and publications,
and prior-year forms and instructions. You should receive your order within 10 days.
-
Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.
-
Solving problems. You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. An
employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Call your local
Taxpayer Assistance Center
for an appointment. To find the number, go to
www.irs.gov/localcontacts or
look in the phone book under United States Government, Internal Revenue Service.
-
TTY/TDD equipment. If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and
publications.
-
TeleTax topics. Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics.
-
Refund information. To check the status of your 2007 refund, call 1-800-829-4477 and press 1 for automated refund information or
call 1-800-829-1954. Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically).
Have your 2007 tax
return available because you will need to know your social security number, your filing status, and the exact whole dollar
amount of your refund.
Evaluating the quality of our telephone services. To ensure IRS representatives give accurate, courteous, and professional answers,
we use several methods to evaluate the quality of our telephone services. One method is for a second IRS representative to
listen in on or record
random telephone calls. Another is to ask some callers to complete a short survey at the end of the call.
Walk-in. Many products and services are available on a walk-in basis.
-
Products. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and
publications. Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions,
and office supply stores
have a collection of products available to print from a CD or photocopy from reproducible proofs. Also, some IRS offices and
libraries have the
Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.
-
Services. You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. An
employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. If you need
to resolve a tax problem,
have questions about how the tax law applies to your individual tax return, or you're more comfortable talking with someone
in person, visit your
local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. No
appointment is necessary,
but if you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue.
A representative will
call you back within 2 business days to schedule an in-person appointment at your convenience. To find the number, go to
www.irs.gov/localcontacts or
look in the phone book under United States Government, Internal Revenue Service.
Mail. You can send your order for forms, instructions, and publications to the address below. You should receive a response within
10
days after your request is received.
National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903
CD/DVD for tax products. You can order Publication 1796, IRS Tax Products CD/DVD, and obtain:
-
Current-year forms, instructions, and publications.
-
Prior-year forms, instructions, and publications.
-
Bonus: Historical Tax Products DVD - Ships with the final release.
-
Tax Map: an electronic research tool and finding aid.
-
Tax law frequently asked questions.
-
Tax Topics from the IRS telephone response system.
-
Fill-in, print, and save features for most tax forms.
-
Internal Revenue Bulletins.
-
Toll-free and email technical support.
-
The CD which is released twice during the year.
- The first release will ship the beginning of January 2008.
- The final release will ship the beginning of March 2008.
Purchase the CD/DVD from National Technical Information Service (NTIS) at
www.irs.gov/cdorders for $35 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD/DVD for $35 (plus a $5
handling fee). Price is subject to change.
CD for small businesses. Publication 3207, The Small Business Resource Guide CD for 2007, is a must for every small business owner or
any taxpayer about to start a business. This year's CD includes:
-
Helpful information, such as how to prepare a business plan, find financing for your business, and much more.
-
All the business tax forms, instructions, and publications needed to successfully manage a business.
-
Tax law changes for 2007.
-
Tax Map: an electronic research tool and finding aid.
-
Web links to various government agencies, business associations, and IRS organizations.
-
“Rate the Product” survey—your opportunity to suggest changes for future editions.
-
A site map of the CD to help you navigate the pages of the CD with ease.
-
An interactive “Teens in Biz” module that gives practical tips for teens about starting their own business, creating a business plan,
and filing taxes.
An updated version of this CD is available each year in early April. You can get a free copy by calling 1-800-829-3676 or
by visiting
www.irs.gov/smallbiz.
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