IRS Publication 939

What Is IRS Publication 939?

Internal Revenue Service Publication 939, General Rule for Pensions and Annuities, likewise called IRS Publication 939, is a document distributed by the IRS that gives guidance on how taxpayers are to treat income from pensions and annuities utilizing the General Rule.

Understanding IRS Publication 939

IRS Publication 939 makes sense of one method for taxing pension and annuity income. The IRS breaks month to month income from pensions and annuities into two parts: a tax-free part comprised of the money that was contributed by the individual, and a taxable part that addresses the positive return on the investment. The General Rule, point by point in IRS Publication 939, is one of two methods used to compute the tax-free part of a pension or annuity. The other method is the Simplified Method, which is covered in IRS Publication 575.

In 2013, the IRS started treating payments from an annuity under a nonqualified plan as net investment income. This modification means taxpayers ought to utilize Form 8960, Net Investment Income Tax — Individuals Estates and Trusts to decide their net investment income tax.

Who Should Use IRS Publication 939

Taxpayers must utilize the General Rule in the event that they receive income from a nonqualified plan, or plan that doesn't meet Internal Revenue Code requirements to receive the tax benefits of a qualified plan. A nonqualified plan could incorporate a nonqualified employee plan or a private or commercial annuity. The General Rule additionally applies to qualified plans assuming the annuity start date falls between July 1, 1986, and Nov. 19, 1996, and the taxpayer doesn't meet all requirements for or didn't pick the Simplified Method. IRS Publication 939 remembers a few extra situations for which the General Rule might apply to qualified plans. Taxpayers ought to utilize the Simplified Method rather than the General Rule assuming that they have qualified plans including qualified employee plans, qualified employee annuities, and tax-sheltered annuities or contracts.

Subjects Not Covered by IRS Publication 939

IRS Publication 939 doesn't cover income from life insurance or individual retirement accounts, additionally called IRAs, and doesn't give specific information on the best way to utilize the Simplified Method. IRS Publication 575, which covers the Simplified Method, remembers information for sums received from a qualified pension or annuity plan that are not periodic, for example, rollovers, lump-sum distributions that are treated as capital gains and early or excess distributions.

The IRS suggests counseling different publications for extra knowledge on the most proficient method to treat retirement income for tax purposes. A portion of the suggested IRS publications incorporate IRS Publication 524 Credit for the Elderly or the Disabled, IRS Publication 571 Tax-Sheltered Annuity Plans (403(b) Plans) and IRS Publication 590 Individual Retirement Arrangements.