Publication 939 - Introductory Material


What's New

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

Future developments.

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

Introduction

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

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

Who must use the General Rule.   Use this publication if you receive pension or annuity payments from:
  1. A nonqualified plan (for example, a private annuity, a purchased commercial annuity, or a nonqualified employee plan),

  2. A qualified plan if:

    1. Your annuity starting date is before November 19, 1996 (and after July 1, 1986), and you do not qualify to use, or did not choose to use, the Simplified Method, or

    2. Your annuity starting date is after November 18, 1996, and as of that date you are age 75 or over and the annuity payments are guaranteed for at least 5 years.

If your annuity starting date was between July 1, 1986 and November 19, 1996, you were able to elect to use the Simplified Method or the General Rule. This choice is irrevocable and applied to all later annuity payments.

The following are qualified plans.

  • A qualified employee plan.

  • A qualified employee annuity.

  • A tax-sheltered annuity (TSA) plan or contract.

Simplified Method.   If you receive pension or annuity payments from a qualified plan and you are not required to use the General Rule, you must use the Simplified Method to determine the tax-free part of each annuity payment. This method is described in Publication 575, Pension and Annuity Income.

  Also, if, at the time the annuity payments began, you were at least age 75 and were entitled to annuity payments from a qualified plan with fewer than 5 years of guaranteed payments, you must use the Simplified Method.

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

Topics not covered in this publication.   Certain topics related to pensions and annuities are not covered in this publication. They include:
  • Simplified Method. This method is covered in Publication 575. That publication also covers nonperiodic payments (amounts not received as an annuity) from a qualified pension or annuity plan, rollovers, special averaging and capital gain treatment of lump-sum distributions, and special additional taxes on early distributions, excess distributions, and excess accumulations (not making required minimum distributions).

  • Individual retirement arrangements (IRAs). Information on the tax treatment of amounts you receive from an IRA is included in Publication 590, Individual Retirement Arrangements (IRAs).

  • Life insurance payments. If you receive life insurance payments because of the death of the insured person, get Publication 525, Taxable and Nontaxable Income, for information on the tax treatment of the proceeds.

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

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

  You can write to us at the following address:

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

  We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

  You can send your comments from www.irs.gov/formspubs/. Click on “More Information” and then on “Comment on Tax Forms and Publications”.

  Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications.   Visit www.irs.gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received.

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

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

Useful Items - You may want to see:

Publication

  • 524 Credit for the Elderly or the Disabled

  • 525 Taxable and Nontaxable Income

  • 571 Tax-Sheltered Annuity Plans (403(b) Plans)

  • 575 Pension and Annuity Income

  • 590 Individual Retirement Arrangements (IRAs)

  • 721 Tax Guide to U.S. Civil Service Retirement Benefits

  • 910 Guide To Free Tax Services

Form (and Instructions)

  • 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

See How To Get Tax Help near the end of this publication for information about getting these publications and forms.


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