It depends, you may use the Three-Year Rule Method if you will recover all of your contributions to the plan within 36 months from the date you receive your first payment from the plan, and both you and your employer contributed to the plan. Please see Worksheet A Which Pension Method to Use on page 5 for additional details.
If you use the Three-year Rule Method, your pension is not reported as taxable income until the payments you receive from the plan equal the amount you contributed. Once you have received an amount equal to your contributions, all payments from the pension plan are fully taxable.
Under General Rule Method, then part of your pension or annuity payment is taxable and part is excluded from your income every year.
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