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Tax volunteer Publication 575 - Main Content Table of Contents General InformationPension. Tax volunteer Annuity. Tax volunteer Qualified employee plan. Tax volunteer Qualified employee annuity. Tax volunteer Designated Roth account. Tax volunteer Tax-sheltered annuity plan. Tax volunteer Fixed-period annuities. Tax volunteer Annuities for a single life. Tax volunteer Joint and survivor annuities. Tax volunteer Variable annuities. Tax volunteer Disability pensions. Tax volunteer Variable Annuities Section 457 Deferred Compensation Plans Disability Pensions Insurance Premiums for Retired Public Safety Officers Railroad Retirement Benefits Withholding Tax and Estimated Tax Cost (Investment in the Contract)Foreign employment contributions while a nonresident alien. Tax volunteer Taxation of Periodic PaymentsPeriod of participation. Tax volunteer Fully Taxable Payments Partly Taxable Payments Taxation of Nonperiodic PaymentsFiguring the Taxable Amount Loans Treated as Distributions Transfers of Annuity Contracts Lump-Sum Distributions RolloversExceptions. Tax volunteer No tax withheld. Tax volunteer Partial rollovers. Tax volunteer Frozen deposits. Tax volunteer Reasonable period of time. Tax volunteer 20% Mandatory withholding. Tax volunteer How to report. Tax volunteer How to report. Tax volunteer Special rule for Roth IRAs and designated Roth accounts. Tax volunteer Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and BeneficiariesGuaranteed payments. Tax volunteer How To Get Tax HelpLow Income Taxpayer Clinics General Information Definitions. Tax volunteer   Some of the terms used in this publication are defined in the following paragraphs. Tax volunteer Pension. Tax volunteer   A pension is generally a series of definitely determinable payments made to you after you retire from work. Tax volunteer Pension payments are made regularly and are based on such factors as years of service and prior compensation. Tax volunteer Annuity. Tax volunteer   An annuity is a series of payments under a contract made at regular intervals over a period of more than one full year. Tax volunteer They can be either fixed (under which you receive a definite amount) or variable (not fixed). Tax volunteer You can buy the contract alone or with the help of your employer. Tax volunteer Qualified employee plan. Tax volunteer   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. Tax volunteer 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). Tax volunteer To determine whether your plan is a qualified plan, check with your employer or the plan administrator. Tax volunteer Qualified employee annuity. Tax volunteer   A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements. Tax volunteer Designated Roth account. Tax volunteer   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), 403(b), or 457(b) plan designated as Roth contributions. Tax volunteer Elective deferrals that are designated as Roth contributions are included in your income. Tax volunteer However, qualified distributions (explained later) are not included in your income. Tax volunteer You should check with your plan administrator to determine if your plan will accept designated Roth contributions. Tax volunteer Tax-sheltered annuity plan. Tax volunteer   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. Tax volunteer Generally, a tax-sheltered annuity plan provides retirement benefits by purchasing annuity contracts for its participants. Tax volunteer Types of pensions and annuities. Tax volunteer   Pensions and annuities include the following types. Tax volunteer Fixed-period annuities. Tax volunteer   You receive definite amounts at regular intervals for a specified length of time. Tax volunteer Annuities for a single life. Tax volunteer   You receive definite amounts at regular intervals for life. Tax volunteer The payments end at death. Tax volunteer Joint and survivor annuities. Tax volunteer   The first annuitant receives a definite amount at regular intervals for life. Tax volunteer After he or she dies, a second annuitant receives a definite amount at regular intervals for life. Tax volunteer The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant. Tax volunteer Variable annuities. Tax volunteer   You receive payments that may vary in amount for a specified length of time or for life. Tax volunteer 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. Tax volunteer Disability pensions. Tax volunteer   You receive disability payments because you retired on disability and have not reached minimum retirement age. Tax volunteer More than one program. Tax volunteer   You may receive employee plan benefits from more than one program under a single trust or plan of your employer. Tax volunteer 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. Tax volunteer Also, you may be considered to have received more than one pension or annuity. Tax volunteer Your former employer or the plan administrator should be able to tell you if you have more than one contract. Tax volunteer Example. Tax volunteer Your employer set up a noncontributory profit-sharing plan for its employees. Tax volunteer The plan provides that the amount held in the account of each participant will be paid when that participant retires. Tax volunteer 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. Tax volunteer 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. Tax volunteer Under the pension plan, however, a formula determines the amount of the pension benefits. Tax volunteer The amount of contributions is the amount necessary to provide that pension. Tax volunteer Each plan is a separate program and a separate contract. Tax volunteer 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. Tax volunteer Distributions from a designated Roth account are treated separately from other distributions from the plan. Tax volunteer Qualified domestic relations order (QDRO). Tax volunteer   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. Tax volunteer 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. Tax volunteer A QDRO may not award an amount or form of benefit that is not available under the plan. Tax volunteer   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. Tax volunteer 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. Tax volunteer The numerator of the fraction is the present value of the benefits payable to the spouse or former spouse. Tax volunteer The denominator is the present value of all benefits payable to the participant. Tax volunteer   A distribution that is paid to a child or other dependent under a QDRO is taxed to the plan participant. Tax volunteer Variable Annuities 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. Tax volunteer 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. Tax volunteer 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. Tax volunteer The earnings are not taxed until distributed either in a withdrawal or in annuity payments. Tax volunteer The taxable part of a distribution is treated as ordinary income. Tax volunteer Net investment income tax. Tax volunteer   Beginning in 2013, annuities under a nonqualified plan are included in calculating your net investment income for the net investment income tax (NIIT). Tax volunteer For information see the Instructions for Form 8960, Net Investment Income Tax — Individuals, Estates and Trusts. Tax volunteer 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. Tax volunteer Withdrawals. Tax volunteer   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. Tax volunteer The tax-free part is based on the ratio of your cost (investment in the contract) to your account balance under the plan. Tax volunteer   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). Tax volunteer 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. Tax volunteer 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). Tax volunteer   If you withdraw funds (other than as an annuity) on or after your annuity starting date, the entire amount withdrawn is generally taxable. Tax volunteer   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. Tax volunteer The rest is taxable. Tax volunteer   For more information on the tax treatment of withdrawals, see Taxation of Nonperiodic Payments , later. Tax volunteer If you withdraw funds from your annuity before you reach age 59½, also see Tax on Early Distributions under Special Additional Taxes, later. Tax volunteer Annuity payments. Tax volunteer   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. Tax volunteer For a variable annuity paid under a qualified plan, you generally must use the Simplified Method. Tax volunteer 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. Tax volunteer For more information, see Variable annuities in Publication 939 under Computation Under the General Rule. Tax volunteer Death benefits. Tax volunteer    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. Tax volunteer If you choose to receive an annuity, the payments are subject to tax as described above. Tax volunteer 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. Tax volunteer See Survivors and Beneficiaries , later. Tax volunteer 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. Tax volunteer 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. Tax volunteer You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. Tax volunteer You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you. Tax volunteer Your 457(b) plan may have a designated Roth account option. Tax volunteer If so, you may be able to roll over amounts to the designated Roth account or make contributions. Tax volunteer Elective deferrals to a designated Roth account are included in your income. Tax volunteer Qualified distributions (explained later) are not included in your income. Tax volunteer See the Designated Roth accounts discussion under Taxation of Periodic Payments, later. Tax volunteer This publication covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. Tax volunteer For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525. Tax volunteer Is your plan eligible?   To find out if your plan is an eligible plan, check with your employer. Tax volunteer 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. Tax volunteer Nonelective deferred compensation plans for nonemployees (independent contractors). Tax volunteer Deferred compensation plans maintained by churches. Tax volunteer Length of service award plans for bona fide volunteer firefighters and emergency medical personnel. Tax volunteer An exception applies if the total amount paid to a volunteer exceeds $3,000 for any year of service. Tax volunteer Disability Pensions 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. Tax volunteer 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. Tax volunteer Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Tax volunteer You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Tax volunteer For information on this credit, see Publication 524. Tax volunteer Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Tax volunteer Report the payments on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Tax volunteer 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. Tax volunteer For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. Tax volunteer 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. Tax volunteer The premiums can be for coverage for you, your spouse, or dependents. Tax volunteer The distribution must be made directly from the plan to the insurance provider. Tax volunteer You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Tax volunteer You can only make this election for amounts that would otherwise be included in your income. Tax volunteer The amount excluded from your income cannot be used to claim a medical expense deduction. Tax volunteer An eligible retirement plan is a governmental plan that is: a qualified trust, a section 403(a) plan, a section 403(b) annuity, or a section 457(b) plan. Tax volunteer If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Tax volunteer The amount shown in box 2a of Form 1099-R does not reflect this exclusion. Tax volunteer Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Tax volunteer Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Tax volunteer Enter “PSO” next to the appropriate line on which you report the taxable amount. Tax volunteer If you are retired on disability and reporting your disability pension on line 7 of Form 1040 or Form 1040A, or line 8 of Form 1040NR, include only the taxable amount on that line and enter “PSO” and the amount excluded on the dotted line next to the applicable line. Tax volunteer Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Tax volunteer These categories are treated differently for income tax purposes. Tax volunteer 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. Tax volunteer 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. Tax volunteer If you received, repaid, or had tax withheld from the SSEB portion of tier 1 benefits during 2013, 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. Tax volunteer S. Tax volunteer Railroad Retirement Board (RRB). Tax volunteer 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. Tax volunteer The second category contains the rest of the tier 1 railroad retirement benefits, called the non-social security equivalent benefit (NSSEB). Tax volunteer It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Tax volunteer Treat this category of benefits, shown on Form RRB-1099-R, as an amount received from a qualified employee plan. Tax volunteer 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. Tax volunteer (The NSSEB and tier 2 benefits, less certain repayments, are combined into one amount called the Contributory Amount Paid on Form RRB-1099-R. Tax volunteer ) Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Tax volunteer See Taxation of Periodic Payments , later, for information on how to report your benefits and how to recover the employee contributions tax free. Tax volunteer Form RRB-1099-R is used for U. Tax volunteer S. Tax volunteer citizens, resident aliens, and nonresident aliens. Tax volunteer Nonresident aliens. Tax volunteer   A nonresident alien is an individual who is not a citizen or a resident alien of the United States. Tax volunteer Nonresident aliens are subject to mandatory U. Tax volunteer S. Tax volunteer tax withholding unless exempt under a tax treaty between the United States and their country of legal residency. Tax volunteer A tax treaty exemption may reduce or eliminate tax withholding from railroad retirement benefits. Tax volunteer See Tax withholding next for more information. Tax volunteer   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. Tax volunteer 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. Tax volunteer For information on filing requirements for aliens, see Publication 519, U. Tax volunteer S. Tax volunteer Tax Guide for Aliens. Tax volunteer For information on tax treaties between the United States and other countries that may reduce or eliminate U. Tax volunteer S. Tax volunteer tax on your benefits, see Publication 901, U. Tax volunteer S. Tax volunteer Tax Treaties. Tax volunteer Tax withholding. Tax volunteer   To request or change your income tax withholding from SSEB payments, U. Tax volunteer S. Tax volunteer citizens should contact the IRS for Form W-4V, Voluntary Withholding Request, and file it with the RRB. Tax volunteer To elect, revoke, or change your income tax withholding from NSSEB, tier 2, VDB, and supplemental annuity payments received, use Form RRB W-4P, Withholding Certificate for Railroad Retirement Payments. Tax volunteer If you are a nonresident alien or a U. Tax volunteer S. Tax volunteer 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. Tax volunteer S. Tax volunteer tax withholding. Tax volunteer Nonresident U. Tax volunteer S. Tax volunteer citizens cannot elect to be exempt from withholding on payments delivered outside of the U. Tax volunteer S. Tax volunteer Help from the RRB. Tax volunteer   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 1-877-772-5772 for the nearest field office) or U. Tax volunteer S. Tax volunteer consulate/Embassy if you reside outside the United States. Tax volunteer You can visit the RRB on the Internet at www. Tax volunteer rrb. Tax volunteer gov. Tax volunteer Form RRB-1099-R. Tax volunteer   The following discussion explains the items shown on Form RRB-1099-R. Tax volunteer The amounts shown on this form are before any deduction for: Federal income tax withholding, Medicare premiums, Legal process garnishment 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. Tax volunteer   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. Tax volunteer   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. Tax volunteer To determine if any of these rules apply to your benefits, see the discussions about them later. Tax volunteer   Generally, amounts shown on your Form RRB-1099-R are considered a normal distribution. Tax volunteer Use distribution code “7” if you are asked for a distribution code. Tax volunteer Distribution codes are not shown on Form RRB-1099-R. Tax volunteer   There are three copies of this form. Tax volunteer Copy B is to be included with your income tax return if federal income tax is withheld. Tax volunteer Copy C is for your own records. Tax volunteer Copy 2 is filed with your state, city, or local income tax return, when required. Tax volunteer See the illustrated Copy B (Form RRB-1099-R) above. Tax volunteer       Each beneficiary will receive his or her own Form RRB-1099-R. Tax volunteer If you receive benefits on more than one railroad retirement record, you may get more than one Form RRB-1099-R. Tax volunteer So that you get your form timely, make sure the RRB always has your current mailing address. Tax volunteer Please click here for the text description of the image. Tax volunteer Form RRB-1099-R Box 1—Claim Number and Payee Code. Tax volunteer   Your claim number is a six- or nine-digit number preceded by an alphabetical prefix. Tax volunteer This is the number under which the RRB paid your benefits. Tax volunteer Your payee code follows your claim number and is the last number in this box. Tax volunteer It is used by the RRB to identify you under your claim number. Tax volunteer In all your correspondence with the RRB, be sure to use the claim number and payee code shown in this box. Tax volunteer Box 2—Recipient's Identification Number. Tax volunteer   This is the recipient's U. Tax volunteer S. Tax volunteer taxpayer identification number. Tax volunteer 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. Tax volunteer 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. Tax volunteer The Instructions for Form W-7 explain how and when to apply. Tax volunteer Box 3—Employee Contributions. Tax volunteer   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. Tax volunteer This amount is the employee's cost that you use to figure the tax-free part of the NSSEB and tier 2 benefit you received (the amount shown in box 4). Tax volunteer (For information on how to figure the tax-free part, see Partly Taxable Payments under Taxation of Periodic Payments, later. Tax volunteer ) The amount shown is the total employee contribution amount, not reduced by any amounts that the RRB calculated as previously recovered. Tax volunteer It is the latest amount reported for 2013 and may have increased or decreased from a previous Form RRB-1099-R. Tax volunteer If this amount has changed, the change is retroactive. Tax volunteer You may need to refigure the tax-free part of your NSSEB/tier 2 benefit for 2013 and prior tax years. Tax volunteer If this box is blank, it means that the amount of your NSSEB and tier 2 payments shown in box 4 is fully taxable. Tax volunteer    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 contribution amount. Tax volunteer Box 4—Contributory Amount Paid. Tax volunteer   This is the gross amount of the NSSEB and tier 2 benefit you received in 2013, less any 2013 benefits you repaid in 2013. Tax volunteer (Any benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Tax volunteer ) This amount is the total contributory pension paid in 2013. Tax volunteer It may be partly taxable and partly tax free or fully taxable. Tax volunteer If you determine you are eligible to compute a tax-free part as explained later in Partly Taxable Payments under Taxation of Periodic Payments, use the latest reported employee contribution amount shown in box 3 as the cost. Tax volunteer Box 5—Vested Dual Benefit. Tax volunteer   This is the gross amount of vested dual benefit (VDB) payments paid in 2013, less any 2013 VDB payments you repaid in 2013. Tax volunteer It is fully taxable. Tax volunteer VDB payments you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Tax volunteer Note. Tax volunteer The amounts shown in boxes 4 and 5 may represent payments for 2013 and/or other years after 1983. Tax volunteer Box 6—Supplemental Annuity. Tax volunteer   This is the gross amount of supplemental annuity benefits paid in 2013, less any 2013 supplemental annuity benefits you repaid in 2013. Tax volunteer It is fully taxable. Tax volunteer Supplemental annuity benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Tax volunteer Box 7—Total Gross Paid. Tax volunteer   This is the sum of boxes 4, 5, and 6. Tax volunteer The amount represents the total pension paid in 2013. Tax volunteer Include this amount on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Tax volunteer Box 8—Repayments. Tax volunteer   This amount represents any NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit you repaid to the RRB in 2013 for years before 2013 or for unknown years. Tax volunteer The amount shown in this box has not been deducted from the amounts shown in boxes 4, 5, and 6. Tax volunteer It only includes repayments of benefits that were taxable to you. Tax volunteer This means it only includes repayments in 2013 of NSSEB benefits paid after 1985, tier 2 and VDB benefits paid after 1983, and supplemental annuity benefits paid in any year. Tax volunteer If you included the benefits in your income in the year you received them, you may be able to deduct the repaid amount. Tax volunteer For more information about repayments, see Repayment of benefits received in an earlier year , later. Tax volunteer    You may have repaid an overpayment of benefits by returning a payment, by making a payment, or by having an amount withheld from your railroad retirement annuity payment. Tax volunteer Box 9—Federal Income Tax Withheld. Tax volunteer   This is the total federal income tax withheld from your NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit. Tax volunteer Include this on your income tax return as tax withheld. Tax volunteer If you are a nonresident alien and your tax withholding rate and/or country of legal residence changed during 2013, you will receive more than one Form RRB-1099-R for 2013. Tax volunteer Determine the total amount of U. Tax volunteer S. Tax volunteer federal income tax withheld from your 2013 RRB NSSEB, tier 2, VDB, and supplemental annuity payments by adding the amounts in box 9 of all original 2013 Forms RRB-1099-R, or the latest corrected or duplicate Forms RRB-1099-R you receive. Tax volunteer Box 10—Rate of Tax. Tax volunteer   If you are taxed as a U. Tax volunteer S. Tax volunteer citizen or resident alien, this box does not apply to you. Tax volunteer 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 2013. Tax volunteer If you are a nonresident alien whose tax was withheld at more than one rate during 2013, you will receive a separate Form RRB-1099-R for each rate change during 2013. Tax volunteer Box 11—Country. Tax volunteer   If you are taxed as a U. Tax volunteer S. Tax volunteer citizen or resident alien, this box does not apply to you. Tax volunteer 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 2013. Tax volunteer If you are a nonresident alien who was a resident of more than one country during 2013, you will receive a separate Form RRB-1099-R for each country of residence during 2013. Tax volunteer Box 12—Medicare Premium Total. Tax volunteer   This is for information purposes only. Tax volunteer The amount shown in this box represents the total amount of Part B Medicare premiums deducted from your railroad retirement annuity payments in 2013. Tax volunteer Medicare premium refunds are not included in the Medicare total. Tax volunteer 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). Tax volunteer However, if Form RRB-1099 or Form RRB-1042S is not required for 2013, then this total will be shown on Form RRB-1099-R. Tax volunteer 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. Tax volunteer Repayment of benefits received in an earlier year. Tax volunteer   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. Tax volunteer   If you repaid $3,000 or less in 2013, deduct it on Schedule A (Form 1040), line 23. Tax volunteer The 2%-of-adjusted-gross-income limit applies to this deduction. Tax volunteer You cannot take this deduction if you file Form 1040A. Tax volunteer    If you repaid more than $3,000 in 2013, 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. Tax volunteer For more information, see Repayments in Publication 525. Tax volunteer Withholding Tax and Estimated Tax Your retirement plan distributions are subject to federal income tax withholding. Tax volunteer However, you can choose not to have tax withheld on payments you receive unless they are eligible rollover distributions. Tax volunteer (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. Tax volunteer ) 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. Tax volunteer See Estimated tax , later. Tax volunteer 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. Tax volunteer For this purpose, a commercial annuity means an annuity, endowment, or life insurance contract issued by an insurance company. Tax volunteer There will be no withholding on any part of a distribution where it is reasonable to believe that it will not be includible in gross income. Tax volunteer Choosing no withholding. Tax volunteer   You can choose not to have income tax withheld from retirement plan payments unless they are eligible rollover distributions. Tax volunteer You can make this choice on Form W-4P for periodic and nonperiodic payments. Tax volunteer This choice generally remains in effect until you revoke it. Tax volunteer   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. Tax volunteer   To choose not to have tax withheld, a U. Tax volunteer S. Tax volunteer citizen or resident alien must give the payer a home address in the United States or its possessions. Tax volunteer Without that address, the payer must withhold tax. Tax volunteer For example, the payer has to withhold tax if the recipient has provided a U. Tax volunteer S. Tax volunteer address for a nominee, trustee, or agent to whom the benefits are delivered, but has not provided his or her own U. Tax volunteer S. Tax volunteer home address. Tax volunteer   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. Tax volunteer S. Tax volunteer citizen, a U. Tax volunteer S. Tax volunteer resident alien, or someone who left the country to avoid tax. Tax volunteer But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. Tax volunteer This 30% rate will not apply if you are exempt or subject to a reduced rate by treaty. Tax volunteer For details, get Publication 519. Tax volunteer Periodic payments. Tax volunteer   Unless you choose no withholding, your annuity or similar periodic payments (other than eligible rollover distributions) will be treated like wages for withholding purposes. Tax volunteer 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). Tax volunteer You should give the payer a completed withholding certificate (Form W-4P or a similar form provided by the payer). Tax volunteer If you do not, tax will be withheld as if you were married and claiming three withholding allowances. Tax volunteer   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. Tax volunteer   You must file a new withholding certificate to change the amount of withholding. Tax volunteer Nonperiodic distributions. Tax volunteer    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. Tax volunteer You can also ask the payer to withhold an additional amount using Form W-4P. Tax volunteer 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. Tax volunteer Eligible rollover distribution. Tax volunteer    If you receive an eligible rollover distribution, 20% of it generally will be withheld for income tax. Tax volunteer You cannot choose not to have tax withheld from an eligible rollover distribution. Tax volunteer 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. Tax volunteer For more information about eligible rollover distributions, see Rollovers , later. Tax volunteer Estimated tax. Tax volunteer   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. Tax volunteer Generally, you must make estimated tax payments for 2014 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 2014 return, or 100% of the tax shown on your 2013 return. Tax volunteer If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above. Tax volunteer For more information, get Publication 505, Tax Withholding and Estimated Tax. Tax volunteer 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. Tax volunteer See Publication 915. Tax volunteer You can choose to have income tax withheld from those benefits. Tax volunteer Use Form W-4V to make this choice. Tax volunteer 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). Tax volunteer 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. Tax volunteer Therefore, the first step in figuring how much of a distribution is taxable is to determine the cost of your pension or annuity. Tax volunteer 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). Tax volunteer To find this amount, you must first figure the total premiums, contributions, or other amounts you paid. Tax volunteer This includes the amounts your employer contributed that were taxable to you when paid. Tax volunteer (However, see Foreign employment contributions , later. Tax volunteer ) 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). Tax volunteer It also does not include amounts you contributed for health and accident benefits (including any additional premiums paid for double indemnity or disability benefits). Tax volunteer From this total cost you must subtract the following amounts. Tax volunteer 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. Tax volunteer Any other tax-free amounts you received under the contract or plan by the later of the dates in (1). Tax volunteer 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. Tax volunteer (See Simplified Method , later, for information on its required use. Tax volunteer ) If you use the General Rule for your annuity payments, the value of the refund feature in your annuity contract. Tax volunteer (See General Rule , later, for information on its use. Tax volunteer ) 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. Tax volunteer For more information, see Publication 939. Tax volunteer The tax treatment of the items described in (1) through (3) is discussed later under Taxation of Nonperiodic Payments . Tax volunteer Form 1099-R. Tax volunteer If you began receiving periodic payments of a life annuity in 2013, the payer should show your total contributions to the plan in box 9b of your 2013 Form 1099-R. Tax volunteer Annuity starting date defined. Tax volunteer   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. Tax volunteer Example. Tax volunteer 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. Tax volunteer The annuity starting date is July 1. Tax volunteer 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. Tax volunteer Designated Roth accounts. Tax volunteer   Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject to applicable withholding requirements. Tax volunteer Your cost will also include any in-plan Roth rollovers you included in income. Tax volunteer Foreign employment contributions. Tax volunteer   If you worked abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had they been paid directly to you as compensation. Tax volunteer The contributions that apply are: Contributions before 1963 by your employer, Contributions after 1962 by your employer if the contributions would be excludible from your gross income (not including the foreign earned income exclusion) had they been paid directly to you, or Contributions after 1996 by your employer if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person) but only if the contributions would be excludible from your gross income had they been paid directly to you. Tax volunteer Foreign employment contributions while a nonresident alien. Tax volunteer   In determining your cost, special rules apply if you are a U. Tax volunteer S. Tax volunteer citizen or resident alien who received distributions in 2013 from a plan to which contributions were made while you were a nonresident alien. Tax volunteer 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. Tax volunteer Taxation of Periodic Payments This section explains how the periodic payments you receive from a pension or annuity plan are taxed. Tax volunteer 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). Tax volunteer These payments are also known as amounts received as an annuity. Tax volunteer If you receive an amount from your plan that is not a periodic payment, see Taxation of Nonperiodic Payments , later. Tax volunteer In general, you can recover the cost of your pension or annuity tax free over the period you are to receive the payments. Tax volunteer 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). Tax volunteer Designated Roth accounts. Tax volunteer   If you receive a qualified distribution from a designated Roth account, the distribution is not included in your gross income. Tax volunteer This applies to both your cost in the account and income earned on that account. Tax volunteer 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. Tax volunteer   If the distribution is not a qualified distribution, the rules discussed in this section apply. Tax volunteer The designated Roth account is treated as a separate contract. Tax volunteer Period of participation. Tax volunteer   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. Tax volunteer Therefore, for designated Roth contributions made for 2013, the first year for which a qualified distribution can be made is 2018. Tax volunteer   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. Tax volunteer   Your 401(k), 403(b), or 457(b) plan may permit you to roll over amounts from those plans to a designated Roth account within the same plan. Tax volunteer This is known as an in-plan Roth rollover. Tax volunteer For more details, see In-plan Roth rollovers , later. Tax volunteer Fully Taxable Payments 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). Tax volunteer You did not pay anything or are not considered to have paid anything for your pension or annuity. Tax volunteer Amounts withheld from your pay on a tax-deferred basis are not considered part of the cost of the pension or annuity payment. Tax volunteer Your employer did not withhold contributions from your salary. Tax volunteer You got back all of your contributions tax free in prior years (however, see Exclusion not limited to cost under Partly Taxable Payments, later). Tax volunteer Report the total amount you got on Form 1040, line 16b; Form 1040A, line 12b; or on Form 1040NR, line 17b. Tax volunteer You should make no entry on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Tax volunteer Deductible voluntary employee contributions. Tax volunteer   Distributions you receive that are based on your accumulated deductible voluntary employee contributions are generally fully taxable in the year distributed to you. Tax volunteer Accumulated deductible voluntary employee contributions include net earnings on the contributions. Tax volunteer If distributed as part of a lump sum, they do not qualify for the 10-year tax option or capital gain treatment, explained later. Tax volunteer Partly Taxable Payments 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. Tax volunteer 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. Tax volunteer The rest of each payment is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Tax volunteer You figure the tax-free part of the payment using one of the following methods. Tax volunteer Simplified Method. Tax volunteer 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). Tax volunteer You cannot use this method if your annuity is paid under a nonqualified plan. Tax volunteer General Rule. Tax volunteer You must use this method if your annuity is paid under a nonqualified plan. Tax volunteer You generally cannot use this method if your annuity is paid under a qualified plan. Tax volunteer 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. Tax volunteer If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately. Tax volunteer Qualified plan annuity starting before November 19, 1996. Tax volunteer   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. Tax volunteer If your annuity starting date is before July 2, 1986, you use the General Rule unless your annuity qualified for the Three-Year Rule. Tax volunteer 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. Tax volunteer Exclusion limit. Tax volunteer   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. Tax volunteer Once your annuity starting date is determined, it does not change. Tax volunteer If you calculate the taxable portion of your annuity payments using the simplified method worksheet, the annuity starting date determines the recovery period for your cost. Tax volunteer That recovery period begins on your annuity starting date and is not affected by the date you first complete the worksheet. Tax volunteer Exclusion limited to cost. Tax volunteer   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. Tax volunteer 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. Tax volunteer This deduction is not subject to the 2%-of-adjusted-gross-income limit. Tax volunteer Example 1. Tax volunteer Your annuity starting date is after 1986, and you exclude $100 a month ($1,200 a year) under the Simplified Method. Tax volunteer The total cost of your annuity is $12,000. Tax volunteer Your exclusion ends when you have recovered your cost tax free, that is, after 10 years (120 months). Tax volunteer After that, your annuity payments are generally fully taxable. Tax volunteer Example 2. Tax volunteer The facts are the same as in Example 1, except you die (with no surviving annuitant) after the eighth year of retirement. Tax volunteer You have recovered tax free only $9,600 (8 × $1,200) of your cost. Tax volunteer An itemized deduction for your unrecovered cost of $2,400 ($12,000 – $9,600) can be taken on your final return. Tax volunteer Exclusion not limited to cost. Tax volunteer   If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Tax volunteer 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. Tax volunteer The total exclusion may be more than your cost. Tax volunteer Simplified Method 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. Tax volunteer 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. Tax volunteer For any other annuity, this number is the number of monthly annuity payments under the contract. Tax volunteer Who must use the Simplified Method. Tax volunteer   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you meet both of the following conditions. Tax volunteer You receive your pension or annuity payments from any of the following plans. Tax volunteer A qualified employee plan. Tax volunteer A qualified employee annuity. Tax volunteer A tax-sheltered annuity plan (403(b) plan). Tax volunteer On your annuity starting date, at least one of the following conditions applies to you. Tax volunteer You are under age 75. Tax volunteer You are entitled to less than 5 years of guaranteed payments. Tax volunteer Guaranteed payments. Tax volunteer   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. Tax volunteer 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. Tax volunteer Annuity starting before November 19, 1996. Tax volunteer   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. Tax volunteer 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 . Tax volunteer Who cannot use the Simplified Method. Tax volunteer   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. Tax volunteer See General Rule , later. Tax volunteer How to use the Simplified Method. Tax volunteer    Complete Worksheet A in the back of this publication to figure your taxable annuity for 2013. Tax volunteer Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Tax volunteer   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Tax volunteer How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Tax volunteer 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. Tax volunteer    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. Tax volunteer Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Tax volunteer Single-life annuity. Tax volunteer   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. Tax volunteer Enter on line 3 the number shown for your age on your annuity starting date. Tax volunteer This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Tax volunteer Multiple-lives annuity. Tax volunteer   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. Tax volunteer Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Tax volunteer 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. Tax volunteer 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. Tax volunteer Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Tax volunteer   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Tax volunteer 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. Tax volunteer This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Tax volunteer Fixed-period annuity. Tax volunteer   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. Tax volunteer Line 6. Tax volunteer   The amount on line 6 should include all amounts that could have been recovered in prior years. Tax volunteer If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Tax volunteer Example. Tax volunteer Bill Smith, age 65, began receiving retirement benefits in 2013 under a joint and survivor annuity. Tax volunteer Bill's annuity starting date is January 1, 2013. Tax volunteer The benefits are to be paid for the joint lives of Bill and his wife, Kathy, age 65. Tax volunteer Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Tax volunteer 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. Tax volunteer 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. Tax volunteer 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. Tax volunteer His completed worksheet is shown later. Tax volunteer Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. Tax volunteer Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Tax volunteer The full amount of any annuity payments received after 310 payments are paid must be included in gross income. Tax volunteer 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. Tax volunteer This deduction is not subject to the 2%-of-adjusted-gross-income limit. Tax volunteer Worksheet A. Tax volunteer Simplified Method Worksheet for Bill Smith 1. Tax volunteer Enter the total pension or annuity payments received this year. Tax volunteer Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Tax volunteer $14,400 2. Tax volunteer Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion. Tax volunteer * See Cost (Investment in the Contract) , earlier 2. Tax volunteer 31,000   Note. Tax volunteer 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 (even if the amount of your pension or annuity has changed). Tax volunteer Otherwise, go to line 3. Tax volunteer     3. Tax volunteer Enter the appropriate number from Table 1 below. Tax volunteer 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. Tax volunteer 310 4. Tax volunteer Divide line 2 by the number on line 3 4. Tax volunteer 100 5. Tax volunteer Multiply line 4 by the number of months for which this year's payments were made. Tax volunteer If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Tax volunteer Otherwise, go to line 6 5. Tax volunteer 1,200 6. Tax volunteer Enter any amount previously recovered tax free in years after 1986. Tax volunteer This is the amount shown on line 10 of your worksheet for last year 6. Tax volunteer -0- 7. Tax volunteer Subtract line 6 from line 2 7. Tax volunteer 31,000 8. Tax volunteer Enter the smaller of line 5 or line 7 8. Tax volunteer 1,200 9. Tax volunteer Taxable amount for year. Tax volunteer Subtract line 8 from line 1. Tax volunteer Enter the result, but not less than zero. Tax volunteer Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Tax volunteer Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Tax volunteer 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. Tax volunteer $13,200 10. Tax volunteer Was your annuity starting date before 1987? □ Yes. Tax volunteer STOP. Tax volunteer Do not complete the rest of this worksheet. Tax volunteer  ☑ No. Tax volunteer Add lines 6 and 8. Tax volunteer This is the amount you have recovered tax free through 2013. Tax volunteer You will need this number if you need to fill out this worksheet next year 10. Tax volunteer 1,200 11. Tax volunteer Balance of cost to be recovered. Tax volunteer Subtract line 10 from line 2. Tax volunteer If zero, you will not have to complete this worksheet next year. Tax volunteer The payments you receive next year will generally be fully taxable 11. Tax volunteer $29,800         * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Tax volunteer           Table 1 for Line 3 Above       AND your annuity starting date was—     IF the age at annuity starting date was. Tax volunteer . Tax volunteer . Tax volunteer BEFORE November 19, 1996, enter on line 3. Tax volunteer . Tax volunteer . Tax volunteer AFTER November 18, 1996, enter on line 3. Tax volunteer . Tax volunteer . Tax volunteer     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. Tax volunteer . Tax volunteer . Tax volunteer THEN enter on line 3. Tax volunteer . Tax volunteer . Tax volunteer     110 or under   410     111-120   360     121-130   310     131-140   260     141 or older   210   Multiple annuitants. Tax volunteer   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. Tax volunteer Figure your share by taking the following steps. Tax volunteer Complete your worksheet through line 4 to figure the monthly tax-free amount. Tax volunteer Divide the amount of your monthly payment by the total amount of the monthly payments to all annuitants. Tax volunteer Multiply the amount on line 4 of your worksheet by the amount figured in (2) above. Tax volunteer The result is your share of the monthly tax-free amount. Tax volunteer   Replace the amount on line 4 of the worksheet with the result in (3) above. Tax volunteer Enter that amount on line 4 of your worksheet each year. Tax volunteer General Rule 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. Tax volunteer Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Tax volunteer To figure it, you must use life expectancy (actuarial) tables prescribed by the IRS. Tax volunteer Who must use the General Rule. Tax volunteer   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. Tax volunteer Annuity starting before November 19, 1996. Tax volunteer   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. Tax volunteer You also had to use it for any fixed-period annuity. Tax volunteer If you did not have to use the General Rule, you could have chosen to use it. Tax volunteer 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. Tax volunteer   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. Tax volunteer Who cannot use the General Rule. Tax volunteer   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. Tax volunteer See Simplified Method , earlier. Tax volunteer More information. Tax volunteer   For complete information on using the General Rule, including the actuarial tables you need, see Publication 939. Tax volunteer Taxation of Nonperiodic Payments This section of the publication explains how any nonperiodic distributions you receive under a pension or annuity plan are taxed. Tax volunteer Nonperiodic distributions are also known as amounts not received as an annuity. Tax volunteer They include all payments other than periodic payments and corrective distributions. Tax volunteer For example, the following items are treated as nonperiodic distributions. Tax volunteer Cash withdrawals. Tax volunteer Distributions of current earnings (dividends) on your investment. Tax volunteer 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. Tax volunteer Certain loans. Tax volunteer See Loans Treated as Distributions , later. Tax volunteer The value of annuity contracts transferred without full and adequate consideration. Tax volunteer See Transfers of Annuity Contracts , later. Tax volunteer Corrective distributions of excess plan contributions. Tax volunteer   Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the excess is taxable to you. Tax volunteer To correct an excess, your plan may distribute it to you (along with any income earned on the excess). Tax volunteer Although the plan reports the corrective distributions on Form 1099-R, the distribution is not treated as a nonperiodic distribution from the plan. Tax volunteer 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. Tax volunteer    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,” “P,” or “E” in box 7. Tax volunteer   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. Tax volunteer 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. Tax volunteer 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. Tax volunteer If it is made under a nonqualified plan, its tax treatment depends on 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. Tax volunteer 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 a traditional IRA tax free. Tax volunteer See Rollovers, later. Tax volunteer 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. Tax volunteer See Lump-Sum Distributions, later. Tax volunteer Annuity starting date. Tax volunteer   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. Tax volunteer Distributions of employer securities. Tax volunteer    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. Tax volunteer The NUA is the net increase in the securities' value while they were in the trust. Tax volunteer This tax deferral applies to distributions of the employer corporation's stocks, bonds, registered debentures, and debentures with interest coupons attached. Tax volunteer   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. Tax volunteer    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. Tax volunteer    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 und