Most of the time, it is fully taxable. However, an amount 9b shows employee contributions that can be used to calculate the taxable portion.
When you have a pension that
you made contributions to in previous years, you can recover the nontaxible
portion over time. The amounts that you have excluded in the past are, the
"Tax-Free Amount Previously Recovered".
Topic Number 411 - Pensions – the
General Rule and the Simplified Method
If some contributions to your pension
or annuity plan were previously included in gross income, you can exclude part
of the distributions from income. You must figure the tax-free part when the
payments first begin. The tax-free part generally remains the same each year,
even if the amount of the payment changes. However, the total amount of your
pension or annuity that you can exclude from income is generally limited to
your total cost (sometimes referred to as "basis" or "investment
in the contract"). For more information on how to determine your total
cost, refer to Publication 575, Pension and Annuity Income.
The General Rule
If you receive annuity payments from a
nonqualified retirement plan, you must use the General Rule. Under the General
Rule, you figure the taxable and tax-free parts of your annuity payments using
life expectancy tables that the IRS issues. For a fee, the IRS will figure the
tax-free part of your annuity payments for you. For more information, refer
to Publication 939, General Rule for Pensions and Annuities.
The Simplified Method
Generally, if you begin receiving
annuity payments from a qualified retirement plan, you use the Simplified
Method to figure the tax-free part of the payments. A qualified retirement plan
is a qualified employee plan, a qualified employee annuity, or a tax-sheltered
annuity plan or contract (refer to Publication
575 for
definitions). Under the Simplified Method, you figure the taxable and tax-free
parts of your annuity payments by completing the Simplified Method
Worksheet in
the Form 1040 Instructions or in Publication
575. For more
information on the Simplified Method, refer to Publication
575, or if you
receive United States Civil Service retirement benefits, refer to Publication
721, Tax Guide to U.S.
Civil Service Retirement Benefits.
