General Information

Some of the terms used in this publication are defined in the following paragraphs.

• A pension is generally a series of payments made to you after you retire from work. Pension payments are made regularly and are for past services with an employer.
• An annuity is a series of payments under a contract. You can buy the contract alone or you can buy it with the help of your employer. Annuity payments are made regularly for more than one full year.

Types of pensions and annuities. Particular types of pensions and annuities include:

1. Fixed period annuities. You receive definite amounts at regular intervals for a definite length of time.
2. Annuities for a single life. You receive definite amounts at regular intervals for life. The payments end at death.
3. 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.
4. Variable annuities. You receive payments that may vary in amount for a definite length of time or for life. The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds or cost-of-living indexes.
5. Disability pensions. You are under minimum retirement age and receive payments because you retired on disability. If, at the time of your retirement, you were permanently and totally disabled, you may be eligible for the credit for the elderly or the disabled discussed in Publication 524.

If your annuity starting date is after November 18, 1996, the General Rule cannot be used for the following qualified plans.

• 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. This plan must meet Internal Revenue Code requirements. It qualifies for special tax benefits, including tax deferral for employer contributions and rollover distributions, and capital gain treatment or the 5- or 10-year tax option for lump-sum distributions.
• A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements.
• A tax-sheltered annuity is a special annuity plan or contract purchased for an employee of a public school or tax-exempt organization.

The General Rule is used to figure the tax treatment of various types of pensions and annuities, including nonqualified employee plans, defined below:

A nonqualified employee plan is an employer's plan that does not meet Internal Revenue Code requirements. It does not qualify for most of the tax benefits of a qualified plan.

Annuity worksheets. The worksheets found after the text of this publication may be useful to you in figuring the taxable part of your annuity.

Request for a ruling. If you are unable to determine the income tax treatment of your pension or annuity, you may ask the Internal Revenue Service to figure the taxable part of your annuity payments. This is treated as a request for a ruling. See Requesting a Ruling on Taxation of Annuity at the end of this publication.

Withholding tax and estimated tax. Your pension or annuity is subject to federal income tax withholding unless you choose not to have tax withheld. If you choose not to have tax withheld from your pension or annuity, or if you do not have enough income tax withheld, you may have to make estimated tax payments.