Publication 575 - Pension And Annuity Income - 2004 Page 9
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36In figuring your withholding or estimated tax, re-
The tax treatment of the items described in (1) through (3)
TIP
member that a part of your monthly social security
is discussed later under Taxation of Nonperiodic Pay-
or equivalent tier 1 railroad retirement benefits
ments.
may be taxable. See Publication 915. You can choose to
Form 1099-R. If you began receiving periodic
have income tax withheld from those benefits. Use Form
TIP
payments of a life annuity in 2004, the payer
W-4V, Voluntary Withholding Request, to make this
should show your total contributions to the plan in
choice.
box 9b of your 2004 Form 1099-R.
Annuity starting date defined. Your annuity starting
Cost (Investment
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
in the Contract)
became fixed.
Example. On January 1, you completed all your pay-
Distributions from your pension or annuity plan may in-
ments required under an annuity contract providing for
clude amounts treated as a recovery of your cost (invest-
monthly payments starting on August 1 for the period
ment in the contract). If any part of a distribution is treated
beginning July 1. The annuity starting date is July 1. This is
as a recovery of your cost under the rules explained in this
the date you use in figuring the cost of the contract and
publication, that part is tax free. Therefore, the first step in
selecting the appropriate number from Table 1 for line 3 of
figuring how much of a distribution is taxable is to deter-
the Simplified Method Worksheet.
mine the cost of your pension or annuity.
In general, your cost is your net investment in the
Foreign employment contributions. If you worked
contract as of the annuity starting date (or the date of the
abroad, your cost includes amounts contributed by your
distribution, if earlier). To find this amount, you must first
employer that were not includible in your gross income.
figure the total premiums, contributions, or other amounts
This applies to contributions that were made either:
you paid. This includes the amounts your employer con-
tributed that were taxable to you when paid. (Also see
1. Before 1963 by your employer for that work,
Foreign employment contributions, later.) It does not in-
2. After 1962 by your employer for that work if you
clude amounts withheld from your pay on a tax-deferred
performed the services under a plan that existed on
basis (money that was taken out of your gross pay before
March 12, 1962, or
taxes were deducted). It also does not include amounts
you contributed for health and accident benefits (including
3. After 1996 by your employer on your behalf if you
any additional premiums paid for double indemnity or disa-
performed the services of a foreign missionary (a
bility benefits).
duly ordained, commissioned, or licensed minister of
a church or a lay person).
From this total cost you must subtract the following
amounts.
Foreign employment contributions while a nonresi-
1. Any refunded premiums, rebates, dividends, or un-
dent alien. In determining your cost, special rules apply if
repaid loans that were not included in your income
you are a U.S. citizen or resident alien who receives
and that you received by the later of the annuity
distributions after October 21, 2004, from a plan to which
starting date or the date on which you received your
contributions were made while you were a nonresident
first payment.
alien. Your contributions and your employer’s contributions
are not included in your cost if the contribution:
2. Any other tax-free amounts you received under the
•
contract or plan by the later of the dates in (1).
Was made based on compensation which was for
services performed outside the United States while
3. If you must use the Simplified Method for your annu-
you were a nonresident alien, and
ity payments, the tax-free part of any single-sum pay-
•
ment received in connection with the start of the
Was not subject to income tax under the laws of the
United States or any foreign country, but only if the
annuity payments, regardless of when you received
it. (See Simplified Method, later, for information on its
contribution would have been subject to income tax
if paid as cash compensation when the services
required use.)
were performed.
4. If you use the General Rule for your annuity pay-
ments, the value of the refund feature in your annuity
contract. (See General Rule, later, for information on
Taxation of
its use.) Your annuity contract has a refund feature if
the annuity payments are for your life (or the lives of
Periodic Payments
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
This section explains how the periodic payments you re-
stated amount or a stated number of payments are
ceive from a pension or annuity plan are taxed. Periodic
made. For more information, see Publication 939.
payments are amounts paid at regular intervals (such as
Page 9
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