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When the General Rule Applies to Pension and Annuity Income: Annuity Tax Calculations (2025 IRS Guide)

This guide covers “When the General Rule Applies to Pension and Annuity Income” 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.

When the General Rule Applies to Pension and Annuity Income

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

Pension.

A pension is generally a series of definitely determinable payments made to you after you retire from work. Pension payments are made regularly and are based on such factors as years of service and prior compensation.

Annuity.

An annuity is a series of payments under a contract made at regular intervals over a period of more than 1 full year. They can be either fixed (under which you receive a definite amount) or variable (not fixed). You can buy the contract alone or with the help of your employer.

Note:

Distributions from pensions and annuities follow the same rules as outlined in this publication unless otherwise noted.

Types of pensions and annuities.

Pensions and annuities include the following types.

  1. Fixed period annuities. You receive definite amounts at regular intervals for a specified 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 they die, 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, or earnings from a mutual fund.

  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 the Instructions for Schedule R (Form 1040), Credit for the Elderly or the Disabled.

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. However, you must use the General Rule if you were 75 or over and the annuity payments are guaranteed for more than 5 years.

  • 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

The General Rule is used to figure the tax treatment of various types of pensions and annuities, including nonqualified employee plans. A nonqualified employee plan is an employer’s plan that doesn’t meet Internal Revenue Code requirements. It doesn’t qualify for most of the tax benefits of a qualified plan. Under the General Rule, the tax-free part of each annuity payment is based on the ratio of your investment in the contract to the total expected return.

Caution: Beginning in 2013, distributions from an annuity under a nonqualified plan are considered net investment income for the purpose of figuring the net investment income tax (NIIT). For more information, see the Instructions for Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts.

Annuity worksheets.

The worksheets found near the end of 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 IRS 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 near 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 don’t have enough income tax withheld, you may have to make estimated tax payments. See Pub. 505.

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

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.

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