Definition from IRS Publication 575

What is IRS Publication 575?

IRS Publication 575 is a document published by the Internal Revenue Service (IRS) that provides information on how to treat pension and annuity distributions, and how to report the income from these distributions on a tax return.

It also describes how to roll over distributions to another retirement plan.

Key takeaways

  • IRS Publication 575 explains how to treat pensions and annuities according to the IRS.
  • This publication covers pension and annuity distributions and how to report them on a tax return.
  • IRS Publication 575 also covers how to approach the tax-free parts of payments.

Understanding IRS Publication 575

IRS Publication 575 is updated for each tax year. Covers the tax treatment of pension and annuity plan distributions and also shows how to report income on a federal income tax return.

How these distributions are taxed depends on whether they are periodic payments, or amounts that are paid at regular intervals over several years, or non-periodic payments, which are amounts that are not received as an annuity. Covers the following topics:

  • How to calculate the tax-free portion of periodic payments for a pension or annuity plan, including using a worksheet for payments for a qualified plan.
  • How to calculate the tax-free portion of non-recurring payments for qualified and non-qualified plans and how to use the optional methods to calculate tax on lump sum distributions from pension, share bonus, and profit sharing plans.
  • How to roll over certain distributions from one retirement plan to another retirement plan or IRA.
  • How to report disability payments and how beneficiaries and survivors of employees and retirees should report benefits that have been paid to them.
  • Reporting Railroad Retirement Benefits.
  • When additional taxes may apply on certain distributions, including early distribution tax and excess accrual tax.

Publication 575 does not cover the tax treatment of funds from unqualified plans such as commercial annuities. Information on this treatment is available in IRS Publication 939, General Rule for Pensions and Annuities.

Additionally, this publication does not cover benefits for retired government employees or their beneficiaries, which are covered in IRS Publication 721, Tax Guide for U.S. Civil Service Retirement Benefits.

Terms Referenced in IRS Publication 575

A pension and an annuity are supplements to retirement income that are paid in installments. However, there are differences, particularly in the eyes of the IRS.

Generally, a pension is a series of payments made by an employer to a retired employee, usually for life. The amount of the payment is based on factors including years of service and prior compensation.

An annuity is a series of payments made as a contractual obligation at regular intervals over a period of more than one year. It can be set so that the beneficiary receives a defined or variable amount if the payment is linked to a return on investment. An employee can finance the contract alone or with the help of an employer.

A qualified employee plan is a company share, pension, or profit-sharing bonus plan that is for the exclusive benefit of employees or their beneficiaries and that meets the requirements of the Internal Revenue Code. That is, you qualify for special tax benefits, such as tax deferral for employer contributions and capital gains treatment for income, if participants qualify.

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