Methods for Figuring Taxable Portions

There are two methods you can use to figure the taxable portion of each pension or annuity payment:

• The General Rule
  
  
• The Simplified Method

Most taxpayers who retire after 1996 can no longer use the General Rule. Unless the exception applies, retirees must use the Simplified Method for annuity payments from a qualified plan. If the taxpayer retired in a previous year, ask what method was used to calculate the tax-free portion. A copy of last year's tax return would be helpful.