Taxation of Periodic Payments — Expected Return: Annuity Tax Calculations (2025 IRS Guide)

This guide covers “Taxation of Periodic Payments — Expected Return” within annuity tax calculations. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 939 (12/2025), General Rule for Pensions and Annuities, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

This section explains how the periodic payments you receive under a pension or annuity plan are taxed under the General Rule. Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than 1 year (such as for 15 years or for life). These payments are also known as amounts received as an annuity.

Tip: If you receive an amount from your plan that is a nonperiodic payment (amount not received as an annuity), see Taxation of Nonperiodic Payments in Pub. 575.

In general, you can recover your net cost of the pension or annuity tax free over the period you are to receive the payments. The amount of each payment that is more than the part that represents your net cost is taxable. Under the General Rule, the part of each annuity payment that represents your net cost is in the same proportion that your investment in the contract is to your expected return. These terms are explained in the following discussions.

Taxation of Periodic Payments — Expected Return

Your expected return is the total amount you and other eligible annuitants can expect to receive under the contract. The following discussions explain how to figure the expected return with each type of annuity.

Tip: A person’s age, for purposes of figuring the expected return, is the age at the birthday nearest to the annuity starting date.

Fixed period annuity.

If you will get annuity payments for a fixed number of years without regard to your life expectancy, you must figure your expected return based on that fixed number of years. It is the total amount you will get beginning at the annuity starting date. You will receive specific periodic payments for a definite period of time, such as a fixed number of months (but not less than 13). To figure your expected return, multiply the fixed number of months for which payments are to be made by the amount of the payment specified for each period.

Single-life annuity.

If you are to get annuity payments for the rest of your life, find your expected return as follows. You must multiply the amount of the annual payment by a multiple based on your life expectancy as of the annuity starting date. These multiples are set out in actuarial Tables I and V near the end of this publication (see How To Use Actuarial Tables, later).

You may need to adjust these multiples if the payments are made quarterly, semiannually, or annually. See Adjustments to Tables I, II, V, VI, and VIA following Table I.

Example.

You bought an annuity contract that will give you an annuity of $500 a month for life. If at the annuity starting date, your nearest birthday is 66, the expected return is figured as follows:

If the payments were to be made to you quarterly and the first payment was made 1 full month after the annuity starting date, you would adjust the 19.2 multiple by +0.1 . Your expected return would then be $115,800 ($6,000 × 19.3).

Annuity for shorter of life or specified period.

With this type of annuity, you are to get annuity payments either for the rest of your life or until the end of a specified period, whichever period is shorter. To figure your expected return, multiply the amount of your annual payment by a multiple in Table IV or VIII for temporary life annuities. Find the proper multiple based on your sex (if using Table IV), your age at the annuity starting date, and the nearest whole number of years in the specified period.

Example.

You purchased an annuity this year that will pay you $200 each month for 5 years or until you die, whichever period is shorter. You were age 65 at your birthday nearest the annuity starting date. You figure the expected return as follows:

Tip: You use Table VIII (not Table IV) because all your contributions were made after June 30, 1986. See Special Elections, later.

Joint and survivor annuities.

If you have an annuity that pays you a periodic income for life and after your death provides an identical lifetime periodic income to your spouse (or some other person), you figure the expected return based on your combined life expectancies. To figure the expected return, multiply the annual payment by a multiple in Table II or VI based on your joint life expectancies. If your payments are made quarterly, semiannually, or annually, you may need to adjust these multiples. See Adjustments to Tables I, II, V, VI, and VIA following Table I near the end of this publication.

Example.

You bought a joint and survivor annuity providing payments of $500 a month for your life and after your death $500 a month for the remainder of your spouse's life. At your annuity starting date, your age at your nearest birthday is 70 and your spouse's at their nearest birthday is 67. The expected return is figured as follows:

Different payments to survivor.

If your contract provides that payments to a survivor annuitant will be different from the amount you receive, you must use a computation that accounts for both the joint lives of the annuitants and the life of the survivor.

Example 1.

You bought a contract providing for payments to yourself of $500 a month for life and after your death payments to your spouse of $350 a month for life. If at the annuity starting date, your nearest birthday is 70 and your spouse’s is 67, the expected return under the contract is figured as follows:

Example 2.

Your spouse died while still employed. Under the terms of their employer's retirement plan, you are entitled to get an immediate annuity of $400 a month for the rest of your life or until you remarry. Your children, Marie and Jean, are each entitled to immediate temporary life annuities of $150 a month until they reach age 18.

You were 50 years old at the annuity starting date. Marie was 16 and Jean was 14. Using the multiples shown in Tables V and VIII at the end of this publication, the total expected return on the annuity starting date is $169,680, figured as follows:

No computation of expected return is made based on your spouse's age at the date of death because they died before the annuity starting date.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 939 (12/2025), General Rule for Pensions and Annuities: Taxation of Periodic Payments — Expected Return — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.