2023 Publication 575

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Department of the Treasury

Internal Revenue Service

Publication 575

Cat. No. 15142B

Pension and

Annuity

Income

For use in preparing

2023 Returns

Get forms and other information faster and easier at:

• IRS.gov (English)

• IRS.gov/Spanish (Español)

•

IRS.gov/Chinese (中文)

•

IRS.gov/Korean (한국어)

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• IRS.gov/Vietnamese (Tiếng Việt)

Contents

Future Developments ....................... 1

What’s New ............................... 2

Reminders ............................... 2

Introduction .............................. 2

General Information ........................ 4

Variable Annuities ........................ 5

Section 457 Deferred Compensation Plans ...... 5

Disability Pensions ....................... 6

Insurance Premiums for Retired Public Safety

Officers ............................. 6

Railroad Retirement Benefits ................ 6

Withholding Tax and Estimated Tax ........... 9

Cost (Investment in the Contract) ............ 10

Taxation of Periodic Payments ............... 11

Fully Taxable Payments ................... 12

Partly Taxable Payments .................. 12

Taxation of Nonperiodic Payments ............ 14

Figuring the Taxable Amount ............... 16

Loans Treated as Distributions .............. 18

Transfers of Annuity Contracts .............. 19

Lump-Sum Distributions .................. 20

Rollovers ............................... 28

Special Additional Taxes ................... 33

Tax on Early Distributions ................. 33

Tax on Excess Accumulation ............... 37

Survivors and Beneficiaries ................. 38

Disaster-Related Relief ..................... 39

Qualified Disaster Recovery Distributions ...... 40

Taxation of Qualified Disaster Distributions ..... 41

Repayment of Qualified Disaster Distributions ... 41

Recontribution of Qualified Distributions for

the Purchase or Construction of a Main

Home ............................. 42

Loans From Qualified Plans ................ 42

How To Get Tax Help ....................... 44

Worksheet A. Simplified Method ............. 49

Recapture Allocation Chart ................. 50

Index .................................. 51

Future Developments

For the latest information about developments related to

Pub. 575, such as legislation enacted after it was

published, go to IRS.gov/Pub575.

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What’s New

Distributions to victims of domestic abuse. For tax

years beginning after December 31, 2023, a distribution to

a domestic abuse victim is not subject to the 10% addi-

tional tax on early distributions if the distribution is made

from an applicable eligible retirement plan and made to an

individual during the 1-year period beginning on the date

on which the individual is a victim of domestic abuse by a

spouse or domestic partner.

An eligible distribution to a domestic abuse victim must

not exceed the lesser of $10,000 or 50% of the present

value of the nonforfeitable accrued benefit of the em-

ployee under the plan.

The distribution may be repaid at any time during the

3-year period beginning on the day after the date on which

the distribution was received.

Reminders

The direct payment requirement for certain distribu-

tions for payment of health or long-term care insur-

ance repealed. Distributions from governmental plans to

an eligible retired public safety officer made after Decem-

ber 29, 2022, for health and long-term care insurance can

be excluded from that employee’s gross income.

These distributions are excluded from gross income

whether the premiums are paid directly to the provider of

the accident or health plan or qualified long-term care in-

surance contract by deduction from a distribution from the

eligible retirement plan or if the distributions are made to

the employee.

The amount which may be excluded from gross income

for the tax year can’t exceed the lesser of $3,000 or the

amount paid for the insurance.

Form 8915-F replaces Form 8915-E. Form 8915-F,

Qualified Disaster Retirement Plan Distributions and Re-

payments, replaces Form 8915-E for reporting qualified

2020 disaster distributions and repayments of those distri-

butions made in 2021, 2022, and 2023, as applicable. In

previous years, distributions and repayments would be re-

ported on the applicable Form 8915 for that year's disas-

ters. For example, Form 8915-D, Qualified 2019 Disaster

Retirement Plan Distributions and Repayments, would be

used to report qualified 2019 disaster distributions and re-

payments.

Form 8915-F is a forever form. Beginning in 2021, addi-

tional alphabetical Forms 8915 will not be issued. For

more information, see the Instructions for Form 8915-F.

Photographs of missing children. The IRS is a proud

partner with the National Center for Missing & Exploited

Children® (NCMEC). Photographs of missing children se-

lected by the Center may appear in this publication on pa-

ges that would otherwise be blank. You can help bring

these children home by looking at the photographs and

calling 1-800-THE-LOST (1-800-843-5678) if you recog-

nize a child.

Introduction

This publication discusses the tax treatment of distribu-

tions you receive from pension and annuity plans and also

shows you how to report the income on your federal in-

come tax return. How these distributions are taxed de-

pends on whether they are periodic payments (amounts

received as an annuity) that are paid at regular intervals

over several years or nonperiodic payments (amounts not

received as an annuity).

What is covered in this publication? This publication

contains information that you need to understand the fol-

lowing topics.

•

How to figure the tax-free part of periodic payments

under a pension or annuity plan, including using a

simple worksheet for payments under a qualified plan.

•

How to figure the tax-free part of nonperiodic pay-

ments from qualified and nonqualified plans, and how

to use the optional methods to figure the tax on

lump-sum distributions from pension, stock bonus,

and profit-sharing plans.

•

How to roll over certain distributions from a retirement

plan into another retirement plan or IRA.

•

How to report disability payments, and how beneficia-

ries and survivors of employees and retirees must re-

port benefits paid to them.

•

How to report railroad retirement benefits.

•

When additional taxes on certain distributions may ap-

ply (including the tax on early distributions and the tax

on excess accumulation).

For additional information on how to report pen-

sion or annuity payments on your federal income

tax return, be sure to review the instructions on

the back of Copies B, C, and 2 of the Form 1099-R, Distri-

butions From Pensions, Annuities, Retirement or

Profit-Sharing Plans, IRAs, Insurance Contracts, etc., that

you received and the instructions for Form 1040, lines 5a

and 5b, and the instructions for Form 1040-NR, lines 5a

and 5b.

A “corrected” Form 1099-R replaces the corre-

sponding original Form 1099-R if the original

Form 1099-R contained an error. Make sure you

use the amounts shown on the corrected Form 1099-R

when reporting information on your tax return.

What isn't covered in this publication? The following

topics aren't discussed in this publication.

The General Rule. This is the method generally used

to determine the tax treatment of pension and annuity in-

come from nonqualified plans (including commercial an-

nuities). For a qualified plan, you can’t generally use the

General Rule unless your annuity starting date is before

November 19, 1996. Although this publication will help

you determine whether you can use the General Rule, it

won't help you use it to determine the tax treatment of your

TIP

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pension or annuity income. For that and other information

on the General Rule, see Pub. 939, General Rule for Pen-

sions and Annuities.

Individual retirement arrangements (IRAs). Infor-

mation on the tax treatment of amounts you receive from

an IRA is in Pub. 590-B.

Civil service retirement benefits. If you are retired

from the federal government (regular, phased, or disability

retirement) or are the survivor or beneficiary of a federal

employee or retiree who died, see Pub. 721, Tax Guide to

U.S. Civil Service Retirement Benefits. Pub. 721 covers

the tax treatment of federal retirement benefits, primarily

those paid under the Civil Service Retirement System

(CSRS) or the Federal Employees' Retirement System

(FERS). It also covers benefits paid from the Thrift Sav-

ings Plan (TSP).

Social security and equivalent tier 1 railroad retire-

ment benefits. For information about the tax treatment of

these benefits, see Pub. 915, Social Security and Equiva-

lent Railroad Retirement Benefits. However, this publica-

tion (575) covers the tax treatment of the non-social secur-

ity equivalent benefit portion of tier 1 railroad retirement

benefits, tier 2 benefits, vested dual benefits, and supple-

mental annuity benefits paid by the U.S. Railroad Retire-

ment Board.

Tax-sheltered annuity plans (403(b) plans). If you

work for a public school or certain tax-exempt organiza-

tions, you may be eligible to participate in a 403(b) retire-

ment plan offered by your employer. Although this publica-

tion covers the treatment of benefits under 403(b) plans

and discusses in-plan Roth rollovers from 403(b) plans to

designated Roth accounts, it doesn't cover other tax provi-

sions that apply to these plans. For that and other informa-

tion on 403(b) plans, see Pub. 571.

Comments and suggestions. We welcome your com-

ments about this publication and suggestions for future

editions.

You can send us comments through IRS.gov/

FormComments. Or, you can write to the Internal Revenue

Service, Tax Forms and Publications, 1111 Constitution

Ave. NW, IR-6526, Washington, DC 20224.

Although we can’t respond individually to each com-

ment received, we do appreciate your feedback and will

consider your comments and suggestions as we revise

our tax forms, instructions, and publications. Don’t send

tax questions, tax returns, or payments to the above ad-

dress.

Getting answers to your tax questions. If you have

a tax question not answered by this publication or the How

To Get Tax Help section near the end of this publication,

go to the IRS Interactive Tax Assistant page at IRS.gov/

Help/ITA where you can find topics by using the search

feature or viewing the categories listed.

Getting tax forms, instructions, and publications.

Go to IRS.gov/Forms to download current and prior-year

forms, instructions, and publications.

Ordering tax forms, instructions, and publications.

Go to IRS.gov/OrderForms to order current forms, instruc-

tions, and publications; call 800-829-3676 to order

prior-year forms and instructions. The IRS will process

your order for forms and publications as soon as possible.

Don’t resubmit requests you’ve already sent us. You can

get forms and publications faster online.

Useful Items

You may want to see:

Publication

505 Tax Withholding and Estimated Tax

524 Credit for the Elderly or the Disabled

525 Taxable and Nontaxable Income

560 Retirement Plans for Small Business (SEP,

SIMPLE, and Qualified Plans)

571 Tax-Sheltered Annuity Plans (403(b) Plans)

590-A Contributions to Individual Retirement

Arrangements (IRAs)

590-B Distributions from Individual Retirement

Arrangements (IRAs)

721 Tax Guide to U.S. Civil Service Retirement

Benefits

907 Tax Highlights for Persons With Disabilities

915 Social Security and Equivalent Railroad

Retirement Benefits

939 General Rule for Pensions and Annuities

976 Disaster Relief

Form (and Instructions)

W-4P Withholding Certificate for Pension or Annuity

Payments

W-4R Withholding Certificate for Nonperiodic

Payments and Eligible Rollover Distributions

1099-R Distributions From Pensions, Annuities,

Retirement or Profit-Sharing Plans, IRAs,

Insurance Contracts, etc.

4972 Tax on Lump-Sum Distributions

5329 Additional Taxes on Qualified Plans (Including

IRAs) and Other Tax-Favored Accounts

8915-C Qualified 2018 Disaster Retirement Plan

Distributions and Repayments

8915-D Qualified 2019 Disaster Retirement Plan

Distributions and Repayments

8915-F Qualified Disaster Retirement Plan

Distributions and Repayments

See How To Get Tax Help near the end of this publication

for information about getting publications and forms.

505

524

525

560

571

590-A

590-B

721

907

915

939

976

W-4P

W-4R

1099-R

4972

5329

8915-C

8915-D

8915-F

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General Information

Definitions. 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 com-

pensation.

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.

Qualified employee plan. 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 and that meets Internal Revenue Code re-

quirements. It qualifies for special tax benefits, such as tax

deferral for employer contributions and capital gain treat-

ment or the 10-year tax option for lump-sum distributions

(if participants qualify). To determine whether your plan is

a qualified plan, check with your employer or the plan ad-

ministrator.

Qualified employee annuity. A qualified employee

annuity is a retirement annuity purchased by an employer

for an employee under a plan that meets Internal Revenue

Code requirements.

Designated Roth account. A designated Roth ac-

count is a separate account created under a qualified

Roth contribution program to which participants may elect

to have part or all of their elective deferrals to a 401(k),

403(b), or 457(b) plan designated as Roth contributions.

In addition, a designated Roth account may include cer-

tain nonelective contributions or matching contributions

that a participant designates as Roth contributions.

Designated Roth contributions, designated Roth non-

elective contributions, and designated Roth matching con-

tributions are included in your income. However, qualified

distributions (explained later) aren't included in your in-

come.

You should check with your plan administrator to deter-

mine if your plan will accept designated Roth contribu-

tions.

Tax-sheltered annuity plan. A tax-sheltered annuity

plan (often referred to as a “403(b) plan” or a “tax-deferred

annuity plan)” is a retirement plan for employees of public

schools and certain tax-exempt organizations. Generally,

a tax-sheltered annuity plan provides retirement benefits

by purchasing annuity contracts for its participants.

Types of pensions and annuities. Pensions and annui-

ties include the following types.

Fixed-period annuities. You receive definite

amounts at regular intervals for a specified length of time.

Annuities for a single life. You receive definite

amounts at regular intervals for life. The payments end at

death.

Joint and survivor annuities. The first annuitant re-

ceives 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.

Variable annuities. You receive payments that may

vary in amount for a specified length of time or for life. The

amounts you receive may depend upon such variables as

profits earned by the pension or annuity funds, cost-of-liv-

ing indexes, or earnings from a mutual fund.

Disability pensions. You receive disability payments

because you retired on disability and haven't reached min-

imum retirement age.

More than one program. You may receive employee

plan benefits from more than one program under a single

trust or plan of your employer. If you participate in more

than one program, you may have to treat each as a sepa-

rate pension or annuity contract, depending upon the facts

in each case. Also, you may be considered to have re-

ceived more than one pension or annuity. Your former em-

ployer or the plan administrator should be able to tell you if

you have more than one contract.

Example. Your employer set up a noncontributory

profit-sharing plan for its employees. The plan provides

that the amount held in the account of each participant will

be paid when that participant retires. Your employer also

set up a contributory defined benefit pension plan for its

employees providing for the payment of a lifetime pension

to each participant after retirement.

The amount of any distribution from the profit-sharing

plan depends on the contributions (including allocated for-

feitures) made for the participant and the earnings from

those contributions. Under the pension plan, however, a

formula determines the amount of the pension benefits.

The amount of contributions is the amount necessary to

provide that pension.

Each plan is a separate program and a separate con-

tract. If you get benefits from these plans, you must ac-

count for each separately, even though the benefits from

both may be included in the same check.

Distributions from a designated Roth account are

treated separately from other distributions from

the plan.

Qualified domestic relations order (QDRO). A QDRO

is a judgment, decree, or order relating to payment of child

support, alimony, or marital property rights to a spouse,

former spouse, child, or other dependent of a participant

in a retirement plan. The QDRO must contain certain spe-

cific information, such as the name and last known mailing

address of the participant and each alternate payee, and

the amount or percentage of the participant's benefits to

be paid to each alternate payee. A QDRO may not award

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an amount or form of benefit that isn't available under the

plan.

A spouse or former spouse who receives part of the

benefits from a retirement plan under a QDRO reports the

payments received as if they were a plan participant. The

spouse or former spouse is allocated a share of the partic-

ipant's cost (investment in the contract) equal to the cost

times a fraction. The numerator of the fraction is the

present value of the benefits payable to the spouse or for-

mer spouse. The denominator is the present value of all

benefits payable to the participant.

A distribution that is paid to a child or other dependent

under a QDRO is taxed to the plan participant.

Variable Annuities

The tax rules in this publication apply both to annuities

that provide fixed payments and to annuities that provide

payments that vary in amount based on investment results

or other factors. For example, they apply to commercial

variable annuity contracts, whether bought by an em-

ployee retirement plan for its participants or bought di-

rectly from the issuer by an individual investor. Under

these contracts, the owner can generally allocate the pur-

chase payments among several types of investment port-

folios or mutual funds and the contract value is determined

by the performance of those investments. The earnings

aren't taxed until distributed either in a withdrawal or in an-

nuity payments. The taxable part of a distribution is trea-

ted as ordinary income.

For information on the tax treatment of a transfer or ex-

change of a variable annuity contract, see Transfers of An-

nuity Contracts under Taxation of Nonperiodic Payments,

later.

Net Investment Income Tax (NIIT). Annuities under a

nonqualified plan are included in calculating your net in-

vestment income for the NIIT. See Form 8960, Net Invest-

ment Income Tax—Individuals, Estates, and Trusts, and its

instructions for more information.

Withdrawals. If you withdraw funds before your annuity

starting date and your annuity is under a qualified retire-

ment plan, a ratable part of the amount withdrawn is tax

free. The tax-free part is based on the ratio of your cost

(investment in the contract) to your account balance under

the plan.

If your annuity is under a nonqualified plan (including a

contract you bought directly from the issuer), the amount

withdrawn is allocated first to earnings (the taxable part)

and then to your cost (the tax-free part). However, if you

bought your annuity contract before August 14, 1982, a

different allocation applies to the investment before that

date and the earnings on that investment. To the extent

the amount withdrawn doesn't exceed that investment and

earnings, it is allocated first to your cost (the tax-free part)

and then to earnings (the taxable part).

If you withdraw funds (other than as an annuity) on or

after your annuity starting date, the entire amount with-

drawn is generally taxable.

The amount you receive in a full surrender of your an-

nuity contract at any time is tax free to the extent of any

cost that you haven't previously recovered tax free. The

rest is taxable.

For more information on the tax treatment of withdraw-

als, see Taxation of Nonperiodic Payments, later. If you

withdraw funds from your annuity before you reach age

/2, also see Tax on Early Distributions under Special

Additional Taxes, later.

Annuity payments. If you receive annuity payments un-

der a variable annuity plan or contract, you recover your

cost tax free under either the Simplified Method or the

General Rule, as explained under Taxation of Periodic

Payments, later. For a variable annuity paid under a quali-

fied plan, you must generally use the Simplified Method.

For a variable annuity paid under a nonqualified plan (in-

cluding a contract you bought directly from the issuer), you

must use a special computation under the General Rule.

For more information, see Variable annuities under Com-

putation Under the General Rule in Pub. 939.

Death benefits. If you receive a single-sum distribution

from a variable annuity contract because of the death of

the owner or annuitant, the distribution is generally taxable

only to the extent it is more than the unrecovered cost of

the contract. If you choose to receive an annuity, the pay-

ments are subject to tax as described above. If the con-

tract provides a joint and survivor annuity and the primary

annuitant had received annuity payments before death,

you figure the tax-free part of annuity payments you re-

ceive as the survivor in the same way the primary annui-

tant did. See Survivors and Beneficiaries, later.

Section 457 Deferred Compensation

Plans

If you work for a state or local government or for a tax-ex-

empt organization, you may be able to participate in a sec-

tion 457 deferred compensation plan. If your plan is an eli-

gible plan, you aren't taxed currently on pay that is

deferred under the plan or on any earnings from the plan's

investment of the deferred pay. You are generally taxed on

amounts deferred in an eligible state or local government

plan only when they are distributed from the plan. You are

taxed on amounts deferred in an eligible tax-exempt or-

ganization plan when they are distributed or otherwise

made available to you.

Your 457(b) plan may have a designated Roth account

option. If so, you may be able to roll over amounts to the

designated Roth account or make contributions. Contribu-

tions to a designated Roth account are included in your in-

come. Qualified distributions (explained later) aren't inclu-

ded in your income. See Designated Roth accounts under

Taxation of Periodic Payments, later.

This publication covers the tax treatment of benefits un-

der eligible section 457 plans, but it doesn't cover the

treatment of deferrals. For information on deferrals under

section 457 plans, see Retirement Plan Contributions un-

der Employee Compensation in Pub. 525.

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Is your plan eligible? To find out if your plan is an eligi-

ble plan, check with your employer. Plans that aren’t eligi-

ble section 457 plans include the following.

•

Bona fide vacation leave, sick leave, compensatory

time, severance pay, disability pay, or death benefit

plans.

•

Nonelective deferred compensation plans for nonem-

ployees (independent contractors).

•

Deferred compensation plans maintained by

churches.

•

Length of service award plans for bona fide volunteer

firefighters and emergency medical personnel. An ex-

ception applies if the total amount paid to a volunteer

exceeds $7,000 for any year of service.

Disability Pensions

If you retired on disability, you must generally include in in-

come any disability pension you receive under a plan that

is paid for by your employer. You must report your taxable

disability payments as wages on Form 1040, 1040-SR, or

1040-NR, line 1h, until you reach minimum retirement age.

Minimum retirement age is generally the age at which you

can first receive a pension or annuity if you aren't disa-

bled.

You may be entitled to a tax credit if you were per-

manently and totally disabled when you retired.

For information on this credit, see Pub. 524.

Beginning on the day after you reach minimum retire-

ment age, payments you receive are taxable as a pension

or annuity. When you receive pension or annuity pay-

ments, you are able to recover your cost or investment.

Your cost is generally your net investment in the plan as of

your annuity starting date. It doesn't include pre-tax contri-

butions. For more information, see Cost (Investment in the

Contract) and Taxation of Periodic Payments, later.

Report the payments on Form 1040, 1040-SR, or

1040-NR, lines 5a and 5b.

Disability payments for injuries incurred as a di-

rect result of a terrorist attack directed against the

United States (or its allies) aren't included in in-

come. For more information about payments to survivors

of terrorist attacks, see Pub. 3920, Tax Relief for Victims of

Terrorist Attacks, and Pub. 907.

Military and government disability pensions. Certain

military and government disability pensions aren’t taxable.

Service-connected disability. You may be able to ex-

clude from income amounts you receive as a pension, an-

nuity, or similar allowance for personal injury or sickness

resulting from active service in one of the following gov-

ernment services.

•

The armed forces of any country.

•

The National Oceanic and Atmospheric Administra-

tion.

•

The Public Health Service.

TIP

•

The Foreign Service.

Insurance Premiums for Retired

Public Safety Officers

If you are an eligible retired public safety officer (law en-

forcement officer, firefighter, chaplain, or member of a res-

cue squad or ambulance crew who is retired because of

disability or because you reached normal retirement age),

you can elect to exclude from income distributions made

from your eligible retirement plan that are used to pay the

premiums for coverage by an accident or health plan or a

long-term care insurance contract. The premiums can be

for coverage for you, your spouse, or dependents.

The distribution must be from the plan maintained by

the employer from which you retired as a public safety offi-

cer. The distribution can be made directly from the plan to

the provider of the accident or health plan or long-term

care insurance contract, or the distribution can be made to

you to pay to the provider of the accident or health plan or

long-term care insurance contract.

You can exclude from income the smaller of the amount

of the insurance premiums or $3,000. You can make this

election only for amounts that would otherwise be inclu-

ded in your income. The amount excluded from your in-

come can't be used to claim a medical expense deduc-

tion.

An eligible retirement plan is a governmental plan that

is a:

•

Qualified trust,

•

Section 403(a) plan,

•

Section 403(b) annuity, or

•

Section 457(b) plan.

If you make this election, reduce the otherwise taxable

amount of your pension or annuity by the amount exclu-

ded. The amount shown in box 2a of Form 1099-R doesn't

reflect this exclusion. Report your total distributions on

Form 1040, 1040-SR, or 1040-NR, line 5a. Report the tax-

able amount on Form 1040, 1040-SR, or 1040-NR,

line 5b. Enter “PSO” next to the appropriate line on which

you report the taxable amount.

If you are retired on disability and reporting your disabil-

ity pension on Form 1040, 1040-SR, or 1040-NR, line 1h,

include only the taxable amount on that line and enter

“PSO” and the amount excluded on the dotted line next to

the applicable line.

Railroad Retirement Benefits

Benefits paid under the Railroad Retirement Act fall into

two categories. These categories are treated differently for

income tax purposes.

The first category is the amount of tier 1 railroad retire-

ment benefits that equals the social security benefit that a

railroad employee or beneficiary would have been entitled

to receive under the social security system. This part of

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the tier 1 benefit is the social security equivalent benefit

(SSEB) and you treat it for tax purposes as social security

benefits. If you received, repaid, or had tax withheld from

the SSEB portion of tier 1 benefits during 2023, you will re-

ceive Form RRB-1099, Payments by the Railroad Retire-

ment Board (or Form RRB-1042S, Statement for Nonresi-

dent Alien Recipients of Payments by the Railroad

Retirement Board, if you are a nonresident alien) from the

U.S. Railroad Retirement Board (RRB).

For more information about the tax treatment of the

SSEB portion of tier 1 benefits and Forms RRB-1099 and

RRB-1042S, see Pub. 915.

The second category contains the rest of the tier 1 rail-

road retirement benefits called the non-social security

equivalent benefit (NSSEB). It also contains any tier 2

benefit, vested dual benefit (VDB), and supplemental an-

nuity benefit. Treat this category of benefits, shown on

Form RRB-1099-R, as an amount received from a quali-

fied employee plan. This allows for the tax-free (nontaxa-

ble) recovery of employee contributions from the tier 2

benefits and the NSSEB part of the tier 1 benefits. (The

NSSEB and tier 2 benefits, less certain repayments, are

combined into one amount called the Contributory

Amount Paid on Form RRB-1099-R.) VDBs and supple-

mental annuity benefits are non-contributory pensions and

are fully taxable. See Taxation of Periodic Payments, later,

for information on how to report your benefits and how to

recover the employee contributions tax free. Form

RRB-1099-R is used for U.S. citizens, resident aliens, and

nonresident aliens.

Nonresident aliens. A nonresident alien is an individual

who isn't a citizen or a resident alien of the United States.

If you are a nonresident alien, you are subject to U.S. tax

on your SSEB portion of tier 1 benefits at a 30% rate, un-

less exempt or subject to a lower treaty rate. See Pub.

519, U.S. Tax Guide for Aliens, for more information.

If your rate of tax changed or your country of legal resi-

dence changed during the tax year, you may receive more

than one Form RRB-1042S or RRB-1099-R. To determine

your total benefits paid or repaid and total tax withheld for

the year, you should add the amounts shown on all forms

you received for that year.

Tax withholding. To request or change your income tax

withholding from SSEB payments, U.S. citizens should

contact the IRS for Form W-4V, Voluntary Withholding Re-

quest, and file it with the RRB. To elect, revoke, or change

your income tax withholding from NSSEB, tier 2, VDB, and

supplemental annuity payments received, use Form RRB

W-4P, Withholding Certificate for Railroad Retirement Pay-

ments. If you are a nonresident alien or a U.S. citizen living

abroad, you should provide Form RRB-1001, Nonresident

Questionnaire, to the RRB to furnish citizenship and resi-

dency information and to claim any treaty exemption from

U.S. tax withholding. Nonresident U.S. citizens can't elect

to be exempt from withholding on payments delivered out-

side the United States.

Help from the RRB. To request an RRB form or to get

help with questions about an RRB benefit, you should

contact your nearest RRB field office if you reside in the

United States (call 877-772-5772 for the nearest field of-

fice) or U.S. Consulate/Embassy if you reside outside the

United States. You can visit the RRB on the Internet at

RRB.gov.

Form RRB-1099-R. The following discussion explains

the items shown on Form RRB-1099-R. The amounts

shown on this form are before any deduction for:

•

Federal income tax withholding;

•

Medicare premiums;

•

Legal process garnishment payments;

•

Recovery of a prior-year overpayment of an NSSEB,

tier 2 benefit, VDB, or supplemental annuity benefit; or

•

Recovery of Railroad Unemployment Insurance Act

benefits received while awaiting payment of your rail-

road retirement annuity.

The amounts shown on this form are after any offset

for:

•

Social security benefits;

•

Age reduction;

•

Public service pensions or public disability benefits;

•

Dual railroad retirement entitlement under another

RRB claim number;

•

Work deductions;

•

Legal process partition deductions;

•

Actuarial adjustment;

•

Annuity waiver; or

•

Recovery of a current-year overpayment of NSSEB,

tier 2 benefits, VDB, or supplemental annuity benefits.

The amounts shown on Form RRB-1099-R don't reflect

any special rules, such as capital gain treatment or the

special 10-year tax option for lump-sum payments, or

tax-free rollovers. To determine if any of these rules apply

to your benefits, see the discussions about them later.

Generally, amounts shown on your Form RRB-1099-R

are considered a normal distribution. Use distribution

code “7” if you are asked for a distribution code. Distribu-

tion codes aren't shown on Form RRB-1099-R.

There are three copies of this form. Copy B is to be in-

cluded with your income tax return if federal income tax is

withheld. Copy C is for your own records. Copy 2 is filed

with your state, city, or local income tax return when re-

quired. See the illustrated Copy B (Form RRB-1099-R),

later.

Each beneficiary will receive their own Form

RRB-1099-R. If you receive benefits on more than

one railroad retirement record, you may get more

than one Form RRB-1099-R. So that you get your form

timely, make sure the RRB always has your current mailing

address.

Box 1—Claim Number and Payee Code. Your claim

number is a six- or nine-digit number preceded by an

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alphabetical prefix. This is the number under which the

RRB paid your benefits. Your payee code follows your

claim number and is the last number in this box. It is used

by the RRB to identify you under your claim number. In all

your correspondence with the RRB, be sure to use the

claim number and payee code shown in this box.

Box 2—Recipient's Identification Number. This is

the recipient's U.S. taxpayer identification number (TIN). It

is the social security number (SSN), individual taxpayer

identification number (ITIN), or employer identification

number (EIN), if known, for the person or estate listed as

the recipient.

If you are a resident or nonresident alien who

must furnish a TIN to the IRS and aren’t eligible to

obtain an SSN, use Form W-7, Application for IRS

Individual Taxpayer Identification Number, to apply for an

ITIN. The Instructions for Form W-7 explain how and when

to apply.

Box 3—Employee Contributions. This is the amount

of taxes withheld from the railroad employee's earnings

that exceeds the amount of taxes that would have been

withheld had the earnings been covered under the social

security system. This amount is the employee's cost that

you use to figure the tax-free part of the NSSEB and tier 2

benefit you received (the amount shown in box 4). (For in-

formation on how to figure the tax-free part, see Partly

Taxable Payments under Taxation of Periodic Payments,

later.) The amount shown is the total employee contribu-

tion amount, not reduced by any amounts that the RRB

calculated as previously recovered. It is the latest amount

reported for 2023 and may have increased or decreased

from a previous Form RRB-1099-R. If this amount has

changed, the change is retroactive. You may need to refig-

ure the tax-free part of your NSSEB/tier 2 benefit for 2023

and prior tax years. If this box is blank, it means that the

amount of your NSSEB and tier 2 payments shown in

box 4 is fully taxable.

TIP

If you had a previous annuity entitlement that

ended and you are figuring the tax-free part of

your NSSEB/tier 2 benefit for your current annuity

entitlement, you should contact the RRB for confirmation

of your correct employee contribution amount.

Box 4—Contributory Amount Paid. This is the gross

amount of the NSSEB and tier 2 benefit you received in

2023, less any 2023 benefits you repaid in 2023. (Any

benefits you repaid in 2023 for an earlier year or for an un-

known year are shown in box 8.) This amount is the total

contributory pension paid in 2023. It may be partly taxable

and partly tax free or fully taxable. If you determine you are

eligible to compute a tax-free part, as explained later in

Partly Taxable Payments under Taxation of Periodic Pay-

ments, use the latest reported employee contribution

amount shown in box 3 as the cost.

Box 5—Vested Dual Benefit. This is the gross

amount of VDB payments paid in 2023, less any 2023

VDB payments you repaid in 2023. It is fully taxable. VDB

payments you repaid in 2023 for an earlier year or for an

unknown year are shown in box 8.

Note. The amounts shown in boxes 4 and 5 may repre-

sent payments for 2023 and/or other years after 1983.

Box 6—Supplemental Annuity. This is the gross

amount of supplemental annuity benefits paid in 2023,

less any 2023 supplemental annuity benefits you repaid in

2022. It is fully taxable. Supplemental annuity benefits you

repaid in 2023 for an earlier year or for an unknown year

are shown in box 8.

Box 7—Total Gross Paid. This is the sum of boxes 4,

5, and 6. The amount represents the total pension paid in

2023. Include this amount on Form 1040, 1040-SR, or

1040-NR, line 5a.

Box 8—Repayments. This amount represents any

NSSEB, tier 2 benefit, VDB, and supplemental annuity

CAUTION

PAYER’S NAME, STREET ADDRESS, CITY, STATE, AND ZIP CODE

UNITED STATES RAILROAD RETIREMENT BOARD

844 N RUSH ST CHICAGO IL 60611-1275

ANNUITIES OR PENSIONS BY THE

RAILROAD RETIREMENT BOARD

PAYER’S FEDERAL IDENTIFYING NO. 36-3314600

FORM RRB-1099-R

COPY B -

REPORT THIS INCOME ON

YOUR FEDERAL TAX

RETURN. IF THIS FORM

SHOWS FEDERAL INCOME

TAX WITHHELD IN BOX 9,

ATTACH THIS COPY TO

YOUR RETURN.

THIS INFORMATION IS BEING

FURNISHED TO THE INTERNAL

REVENUE SERVICE.

Claim Number and Payee Code

Recipient’s

Number

Recipient’s Name, Street Address, City, State, and Zip Code

10.

Employee Contributions

Contributory Amount Paid

Vested Dual

Supplemental Annuity

Total Gross Paid

(Sum of boxes 4, 5, and 6)

Repayments

Federal Income Tax

Withheld

Medicare Premium Total

2023

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benefit you repaid to the RRB in 2023 for years before

2023 or for unknown years. The amount shown in this box

hasn't been deducted from the amounts shown in boxes 4,

5, and 6. It only includes repayments of benefits that were

taxable to you. This means it only includes repayments in

2023 of NSSEB paid after 1985, tier 2 benefits and VDB

paid after 1983, and supplemental annuity benefits paid in

any year. If you included the benefits in your income in the

year you received them, you may be able to deduct the re-

paid amount. For more information about repayments, see

Repayment of benefits received in an earlier year, later.

You may have repaid an overpayment of benefits

by returning a payment, by making a payment, or

by having an amount withheld from your railroad

retirement annuity payment.

Box 9—Federal Income Tax Withheld. This is the to-

tal federal income tax withheld from your NSSEB, tier 2

benefit, VDB, and supplemental annuity benefit. Include

this on your income tax return as tax withheld. If you are a

nonresident alien and your tax withholding rate and/or

country of legal residence changed during 2023, you will

receive more than one Form RRB-1099-R for 2023. Deter-

mine the total amount of U.S. federal income tax withheld

from your 2023 RRB NSSEB, tier 2, VDB, and supplemen-

tal annuity payments by adding the amounts in box 9 of all

original 2023 Forms RRB-1099-R, or the latest corrected

or duplicate Forms RRB-1099-R you receive.

Box 10—Rate of Tax. If you are a nonresident alien,

an entry in this box indicates the rate at which tax was

withheld on the NSSEB, tier 2, VDB, and supplemental

annuity payments that were paid to you in 2023. If you are

a nonresident alien whose tax was withheld at more than

one rate during 2023, you will receive a separate Form

RRB-1099-R for each rate change during 2023. If you are

taxed as a U.S. citizen or resident alien, this box doesn't

apply to you.

Box 11—Country. If you are a nonresident alien, an

entry in this box indicates the country of which you were a

resident for tax purposes at the time you received railroad

retirement payments in 2023. If you are a nonresident

alien who was a resident of more than one country during

2023, you will receive a separate Form RRB-1099-R for

each country of residence during 2023. If you are taxed as

a U.S. citizen or resident alien, this box doesn't apply to

you.

Box 12—Medicare Premium Total. This is for infor-

mation purposes only. The amount shown in this box rep-

resents the total amount of Medicare Part B premiums de-

ducted from your railroad retirement annuity payments in

2023. Medicare premium refunds aren't included in the

Medicare total. The Medicare total is normally shown on

Form RRB-1099 (if you are a citizen or resident alien of

the United States) or Form RRB-1042S (if you are a non-

resident alien). However, if Form RRB-1099 or Form

RRB-1042S isn't required for 2023, then this total will be

shown on Form RRB-1099-R. If your Medicare premiums

were deducted from your social security benefits, paid by

a third party, refunded to you, and/or you paid the

TIP

premiums by direct billing, your Medicare total won't be

shown in this box.

Repayment of benefits received in an earlier year. If

you had to repay any railroad retirement benefits that you

had included in your income in an earlier year because at

that time you thought you had an unrestricted right to it,

you can deduct the amount you repaid in the year in which

you repaid it.

However, if you repaid $3,000, or less, for tax years

2018 through 2025, miscellaneous itemized deductions

subject to the 2%-of-adjusted-gross-income limit are sus-

pended and therefore not deductible on Schedule A (Form

1040).

If you repaid more than $3,000 in 2023, you can either

take a deduction for the amount repaid on Schedule A

(Form 1040), line 16, or you can take a credit against your

tax. For more information, see Repayments in Pub. 525.

Withholding Tax and Estimated Tax

Your retirement plan distributions are subject to federal in-

come tax withholding. However, you can choose not to

have tax withheld on payments you receive unless they

are eligible rollover distributions. (These are distributions,

described later under Rollovers, that are eligible for roll-

over treatment but aren't paid directly to another qualified

retirement plan or to a traditional IRA.) If you choose not to

have tax withheld or if you don't have enough tax withheld,

you may have to make estimated tax payments. See Esti-

mated tax, later.

The withholding rules apply to the taxable part of pay-

ments you receive from:

•

An employer pension, annuity, profit-sharing, or stock

bonus plan;

•

Any other deferred compensation plan;

•

A traditional IRA; or

•

A commercial annuity.

For this purpose, a commercial annuity means an annuity,

endowment, or life insurance contract issued by an insur-

ance company.

There will be no withholding on any part of a distri-

bution where it is reasonable to believe that it

won't be includible in gross income.

Choosing no withholding. You can choose not to have

income tax withheld from retirement plan payments unless

they are eligible rollover distributions. You can make this

choice on Form W-4P for periodic payments or Form

W-4R for nonperiodic payments. This choice generally re-

mains in effect until you revoke it.

The payer will ignore your choice not to have tax with-

held if:

•

You don't give the payer your SSN (in the required

manner); or

•

The IRS notifies the payer, before the payment is

made, that you gave an incorrect SSN.

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To choose not to have tax withheld, a U.S. citizen or

resident alien must give the payer a home address in the

United States or its territories. Without that address, the

payer must withhold tax. For example, the payer has to

withhold tax if the recipient has provided a U.S. address

for a nominee, trustee, or agent to whom the benefits are

delivered, but hasn't provided their own U.S. home ad-

dress.

If you don't give the payer a home address in the United

States or its territories, you can choose not to have tax

withheld only if you certify to the payer that you aren't a

U.S. citizen, a U.S. resident alien, or someone who is sub-

ject to section 877 because you expatriated before June

17, 2008. See Form 8854 and its instructions for details

about section 877. But, if you so certify, you may be sub-

ject to the 30% flat rate withholding that applies to nonres-

ident aliens. This 30% rate won't apply if you are exempt

or subject to a reduced rate by treaty. For details, see Pub.

519.

Periodic payments. Unless you choose no withholding,

your annuity or similar periodic payments (other than eligi-

ble rollover distributions) will be treated as wages for with-

holding purposes. 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). You should give the payer a completed withhold-

ing certificate (Form W-4P or a similar form provided by

the payer). If you don't, tax will be withheld as if you were

single with no adjustments made in Steps 2 through 4 on

Form W-4P.

Tax will be withheld as if you were single with no adjust-

ments made in Steps 2 through 4 on Form W-4P if:

•

You don't give the payer your SSN (in the required

manner), or

•

The IRS notifies the payer (before any payment is

made) that you gave an incorrect SSN.

You must file a new withholding certificate to change

the amount of withholding. See the instructions for Form

W-P and Periodic Payments in Pub. 505 for more informa-

tion.

Nonperiodic distributions. Unless you choose no with-

holding, the withholding rate for a nonperiodic distribution

(a payment other than a periodic payment) that isn't an eli-

gible rollover distribution is 10% of the distribution. You

can also ask the payer to withhold an additional amount

using Form W-4R. The part of any loan treated as a distri-

bution (except an offset amount to repay the loan), ex-

plained later, is subject to withholding under this rule.

Eligible rollover distribution. If you receive an eligible

rollover distribution, 20% of it will generally be withheld for

income tax. You can't choose not to have tax withheld

from an eligible rollover distribution. However, tax won't be

withheld if you have the plan administrator pay the eligible

rollover distribution directly to another qualified plan or an

IRA in a direct rollover. For more information about eligible

rollover distributions, see Rollovers, later.

Estimated tax. Your estimated tax is the total of your ex-

pected income tax, self-employment tax, and certain other

taxes for the year, minus your expected credits and with-

held tax. Generally, you must make estimated tax pay-

ments for 2024 if you expect to owe at least $1,000 in tax

(after subtracting your withholding and credits) and you

expect your withholding and credits to be less than the

smaller of:

1. 90% of the tax to be shown on your 2024 return, or

2. 100% of the tax shown on your 2023 return.

If your adjusted gross income for 2023 was more than

$150,000 ($75,000 if your filing status for 2024 is married

filing separately), substitute 110% for 100% in (2) above.

For more information, see Pub. 505.

In figuring your withholding or estimated tax, re-

member that a part of your monthly social security

or equivalent tier 1 railroad retirement benefits

may be taxable. See Pub. 915. You can choose to have in-

come tax withheld from those benefits. Use Form W-4V to

make this choice.

Cost (Investment in the

Contract)

Distributions from your pension or annuity plan may in-

clude amounts treated as a recovery of your cost (invest-

ment in the contract). If any part of a distribution is treated

as a recovery of your cost under the rules explained in this

publication, that part is tax free. Therefore, the first step in

figuring how much of a distribution is taxable is to deter-

mine the cost of your pension or annuity.

In general, your cost is your net investment in the con-

tract as of the annuity starting date (or the date of the dis-

tribution if earlier). To find this amount, you must first figure

the total premiums, contributions, or other amounts you

paid. This includes the amounts your employer contrib-

uted that were taxable to you when paid. However, see

Foreign employment contributions, later. It doesn't include

amounts withheld from your pay on a tax-deferred basis

(money that was taken out of your gross pay before taxes

were deducted). It also doesn't include amounts you con-

tributed for health and accident benefits (including any ad-

ditional premiums paid for double indemnity or disability

benefits).

From this total cost you must subtract the following

amounts.

1. Any refunded premiums, rebates, dividends, or unre-

paid loans that weren't included in your income and

that you received by the later of the annuity starting

date or the date on which you received your first pay-

ment.

2. Any other tax-free amounts you received under the

contract or plan by the later of the dates in (1).

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3. If you must use the Simplified Method for your annuity

payments, the tax-free part of any single-sum pay-

ment received in connection with the start of the annu-

ity payments, regardless of when you received it. (See

Simplified Method, later, for information on its required

use.)

4. If you use the General Rule for your annuity payments,

the value of the refund feature in your annuity con-

tract. (See General Rule, later, for information on its

use.) Your annuity contract has a refund feature if the

annuity payments are for your life (or the lives of you

and your survivor) and payments in the nature of a re-

fund of the annuity's cost will be made to your benefi-

ciary or estate if all annuitants die before a stated

amount or a stated number of payments are made.

For more information, see Pub. 939.

The tax treatment of the items described in (1) through (3)

is discussed later under Taxation of Nonperiodic Pay-

ments.

Form 1099-R. If you began receiving periodic

payments of a life annuity in 2023, the payer

should show your total contributions to the plan in

box 9b of your 2023 Form 1099-R.

Annuity starting date defined. Your annuity starting

date is the later of the first day of the first period for which

you received a payment or the date the plan's obligations

became fixed.

Example. On January 1, you completed all your pay-

ments required under an annuity contract providing for

monthly payments starting on August 1 for the period be-

ginning July 1. The annuity starting date is July 1. This is

the date you use in figuring the cost of the contract and

selecting the appropriate number from Table 1 for line 3 of

the Simplified Method Worksheet.

Designated Roth accounts. Your cost in these accounts

is your designated Roth contributions that were included

in your income as wages subject to applicable withholding

requirements. Your cost will also include any in-plan Roth

rollovers, designated Roth nonelective contributions, or

designated Roth matching contributions you included in

income.

Foreign employment contributions. If you worked

abroad, your cost may include contributions by your em-

ployer to the retirement plan, but only if those contribu-

tions would be excludable from your gross income had

they been paid directly to you as compensation. The con-

tributions that apply are:

1. Contributions before 1963 by your employer,

2. Contributions after 1962 by your employer if the con-

tributions would be excludable from your gross in-

come (not including the foreign earned income exclu-

sion) had they been paid directly to you, or

3. Contributions after 1996 by your employer if you per-

formed the services of a foreign missionary (a duly or-

dained, commissioned, or licensed minister of a

TIP

church or a lay person) but only if the contributions

would be excludable from your gross income had they

been paid directly to you.

Foreign employment contributions while a nonres-

ident alien. In determining your cost, special rules apply

if you are a U.S. citizen or resident alien who received dis-

tributions in 2023 from a plan to which contributions were

made while you were a nonresident alien. Your contribu-

tions and your employer's contributions aren't included in

your cost if the contribution:

•

Was made based on compensation which was for

services performed outside the United States while

you were a nonresident alien; and

•

Wasn't subject to income tax under the laws of the

United States or any foreign country, but only if the

contribution would have been subject to income tax if

paid as cash compensation when the services were

performed.

Taxation of Periodic Payments

This section explains how the periodic payments you re-

ceive from a pension or annuity plan are taxed. 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. If you

receive an amount from your plan that isn't a periodic pay-

ment, see Taxation of Nonperiodic Payments, later.

In general, you can recover the cost of your pension or

annuity tax free over the period you are to receive the pay-

ments. The amount of each payment that is more than the

part that represents your cost is taxable. However, see In-

surance Premiums for Retired Public Safety Officers, ear-

lier.

Designated Roth accounts. If you receive a qualified

distribution from a designated Roth account, the distribu-

tion isn't included in your gross income. This applies to

both your cost in the account and income earned on that

account. A qualified distribution is generally a distribu-

tion that is:

•

Made after a 5-tax-year period of participation; and

•

Made on or after the date you reach age 59

/2, made

to a beneficiary or your estate on or after your death,

or attributable to your being disabled.

If the distribution isn't a qualified distribution, the rules

discussed in this section apply. The designated Roth ac-

count is treated as a separate contract.

Period of participation. The 5-tax-year period of par-

ticipation is the 5-tax-year period beginning with the first

tax year for which a contribution was made to the partici-

pant's designated Roth account in the plan. Therefore, if a

contribution is first made to a participant's designated

Roth account in the plan for 2023, the first year for which a

qualified distribution can be made is 2028.

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However, if a direct rollover is made to the plan from a

designated Roth account under another plan, the

5-tax-year period for the recipient plan begins with the first

tax year for which a contribution was made to the partici-

pant's designated Roth account in the other plan (if ear-

lier).

Your 401(k), 403(b), or 457(b) plan may permit you to

roll over amounts from those plans to a designated Roth

account within the same plan. This is known as an in-plan

Roth rollover. If an in-plan Roth rollover is the first contribu-

tion made to your designated Roth account, the 5-tax-year

period of participation begins on the first day of the first

tax year in which you make the in-plan Roth rollover.

For more details, see In-plan Roth rollovers, later.

Fully Taxable Payments

The pension or annuity payments that you receive are fully

taxable if you have no cost in the contract because any of

the following situations apply to you. However, see Insur-

ance Premiums for Retired Public Safety Officers, earlier.

•

You didn't pay anything or aren't considered to have

paid anything for your pension or annuity. Amounts

withheld from your pay on a tax-deferred basis aren't

considered part of the cost of the pension or annuity

payment.

•

Your employer didn't withhold contributions from your

salary.

•

You got back all of your contributions tax free in prior

years. However, see Exclusion not limited to cost un-

der Partly Taxable Payments, later.

Report the total amount you received on Form 1040,

1040-SR, or 1040-NR, line 5b. You should make no entry

on Form 1040, 1040-SR, or 1040-NR, line 5a.

Deductible voluntary employee contributions. Distri-

butions you receive that are based on your accumulated

deductible voluntary employee contributions are generally

fully taxable in the year distributed to you. Accumulated

deductible voluntary employee contributions include net

earnings on the contributions. If distributed as part of a

lump sum, they don't qualify for the 10-year tax option or

capital gain treatment, explained later.

Partly Taxable Payments

If you have a cost to recover from your pension or annuity

plan (see Cost (Investment in the Contract), earlier), you

can exclude part of each annuity payment from income as

a recovery of your cost. This tax-free part of the payment

is figured when your annuity starts and remains the same

each year even if the amount of the payment changes.

The rest of each payment is taxable. However, see Insur-

ance Premiums for Retired Public Safety Officers, earlier.

You figure the tax-free part of the payment using one of

the following methods.

•

Simplified Method. You must generally use this

method if your annuity is paid under a qualified plan (a

qualified employee plan, a qualified employee annuity,

or a tax-sheltered annuity plan or contract). You can't

use this method if your annuity is paid under a non-

qualified plan.

•

General Rule. You must use this method if your annu-

ity is paid under a nonqualified plan. Generally, you

can't use this method if your annuity is paid under a

qualified plan. However, see Qualified plan annuity

starting before November 19, 1996, later, for excep-

tions to this rule.

You determine which method to use when you first begin

receiving your annuity, and you continue using it each year

that you recover part of your cost.

If you had more than one partly taxable pension or an-

nuity, figure the tax-free part and the taxable part of each

separately.

Qualified plan annuity starting before November 19,

1996. If your annuity is paid under a qualified plan and

your annuity starting date (defined earlier under Cost (In-

vestment in the Contract)) is after July 1, 1986, and before

November 19, 1996, you could have chosen to use either

the Simplified Method or the General Rule. If your annuity

starting date is before July 2, 1986, you use the General

Rule unless your annuity qualified for the 3-year Rule. If

you used the 3-year Rule (which was repealed for annui-

ties starting after July 1, 1986), your annuity payments are

generally now fully taxable.

Exclusion limit. Your annuity starting date determines

the total amount of annuity payments that you can exclude

from income over the years. Once your annuity starting

date is determined, it doesn't change. If you calculate the

taxable portion of your annuity payments using the Simpli-

fied Method Worksheet, the annuity starting date deter-

mines the recovery period for your cost. That recovery pe-

riod begins on your annuity starting date and isn't affected

by the date you first complete the worksheet.

Exclusion limited to cost. If your annuity starting

date is after 1986, the total amount of annuity income that

you can exclude over the years as a recovery of the cost

can't exceed your total cost. Any unrecovered cost at your

(or the last annuitant's) death is allowed as an itemized

deduction on the final return of the decedent.

Example 1. Your annuity starting date is after 1986,

and you exclude $100 a month ($1,200 a year) under the

Simplified Method. The total cost of your annuity is

$12,000. Your exclusion ends when you have recovered

your cost tax free, that is, after 10 years (120 months). Af-

ter that, your annuity payments are generally fully taxable.

Example 2. The facts are the same as in Example 1,

except you die (with no surviving annuitant) after the

eighth year of retirement. You have recovered tax free only

$9,600 (8 × $1,200) of your cost. An itemized deduction

for your unrecovered cost of $2,400 ($12,000 – $9,600)

can be taken on your final return.

Exclusion not limited to cost. If your annuity starting

date is before 1987, you can continue to take your monthly

exclusion for as long as you receive your annuity. If you

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chose a joint and survivor annuity, your survivor can con-

tinue to take the survivor's exclusion figured as of the an-

nuity starting date. The total exclusion may be more than

your cost.

Simplified Method

Under the Simplified Method, you figure the tax-free part

of each annuity payment by dividing your cost by the total

number of anticipated monthly payments. For an annuity

that is payable for the lives of the annuitants, this number

is based on the annuitants' ages on the annuity starting

date and is determined from a table. For any other annuity,

this number is the number of monthly annuity payments

under the contract.

Who must use the Simplified Method. You must use

the Simplified Method if your annuity starting date is after

November 18, 1996, and you meet both of the following

conditions.

1. You receive your pension or annuity payments from

any of the following plans.

a. A qualified employee plan.

b. A qualified employee annuity.

c. A tax-sheltered annuity plan (403(b) plan).

2. On your annuity starting date, at least one of the fol-

lowing conditions applies to you.

a. You are under age 75.

b. You are entitled to less than 5 years of guaranteed

payments.

Guaranteed payments. Your annuity contract pro-

vides guaranteed payments if a minimum number of pay-

ments or a minimum amount (for example, the amount of

your investment) is payable even if you and any survivor

annuitant don't live to receive the minimum. If the mini-

mum amount is less than the total amount of the payments

you are to receive, barring death, during the first 5 years

after payments begin (figured by ignoring any payment in-

creases), you are entitled to less than 5 years of guaran-

teed payments.

Annuity starting before November 19, 1996. If your

annuity starting date is after July 1, 1986, and before No-

vember 19, 1996, and you chose to use the Simplified

Method, you must continue to use it each year that you re-

cover part of your cost. You could have chosen to use the

Simplified Method if your annuity is payable for your life (or

the lives of you and your survivor annuitant) and you met

both of the conditions listed earlier under Who must use

the Simplified Method.

Who can't use the Simplified Method. You can't use

the Simplified Method if you receive your pension or annu-

ity from a nonqualified plan or otherwise don't meet the

conditions described in the preceding discussion. See

General Rule, later.

How to use the Simplified Method. Complete Work-

sheet A near the end of this publication to figure your taxa-

ble annuity for 2023. Be sure to keep the completed work-

sheet; it will help you figure your taxable annuity next year.

To complete line 3 of the worksheet, you must deter-

mine the total number of expected monthly payments for

your annuity. How you do this depends on whether the an-

nuity is for a single life, multiple lives, or a fixed period. For

this purpose, treat an annuity that is payable over the life

of an annuitant as payable for that annuitant's life even if

the annuity has a fixed-period feature or also provides a

temporary annuity payable to the annuitant's child under

age 25.

You don't need to complete line 3 of the work-

sheet or make the computation on line 4 if you re-

ceived annuity payments last year and used last

year's worksheet to figure your taxable annuity. Instead,

enter the amount from line 4 of last year's worksheet on

line 4 of this year's worksheet.

Single-life annuity. If your annuity is payable for your

life alone, use Table 1 at the bottom of the worksheet to

determine the total number of expected monthly pay-

ments. Enter on line 3 the number shown for your age on

your annuity starting date. This number will differ depend-

ing on whether your annuity starting date is before Novem-

ber 19, 1996, or after November 18, 1996.

Multiple-lives annuity. If your annuity is payable for

the lives of more than one annuitant, use Table 2 at the

bottom of the worksheet to determine the total number of

expected monthly payments. Enter on line 3 the number

shown for the annuitants' combined ages on the annuity

starting date. For an annuity payable to you as the primary

annuitant and to more than one survivor annuitant, com-

bine your age and the age of the youngest survivor annui-

tant. For an annuity that has no primary annuitant and is

payable to you and others as survivor annuitants, combine

the ages of the oldest and youngest annuitants. Don't treat

as a survivor annuitant anyone whose entitlement to pay-

ments depends on an event other than the primary annui-

tant's death.

However, if your annuity starting date is before 1998,

don't use Table 2 and don't combine the annuitants' ages.

Instead, you must use Table 1 at the bottom of the work-

sheet and enter on line 3 the number shown for the pri-

mary annuitant's age on the annuity starting date. This

number will differ depending on whether your annuity

starting date is before November 19, 1996, or after No-

vember 18, 1996.

Fixed-period annuity. If your annuity doesn't depend

in whole or in part on anyone's life expectancy, the total

number of expected monthly payments to enter on line 3

of the worksheet is the number of monthly annuity pay-

ments under the contract.

Line 6. The amount on line 6 should include all

amounts that could have been recovered in prior years. If

you didn't recover an amount in a prior year, you may be

able to amend your returns for the affected years.

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Example. Bill Smith, age 65, began receiving retire-

ment benefits in 2023 under a joint and survivor annuity.

Bill's annuity starting date is January 1, 2023. The benefits

are to be paid for the joint lives of Bill and his spouse, age

65. Bill had contributed $31,000 to a qualified plan and

had received no distributions before the annuity starting

date. Bill is to receive a retirement benefit of $1,200 a

month, and his spouse is to receive a monthly survivor

benefit of $600 upon Bill's death.

Bill must use the Simplified Method to figure his taxable

annuity because his payments are from a qualified plan

and he is under age 75. Because his annuity is payable

over the lives of more than one annuitant, he uses his and

his spouse's combined ages and Table 2 at the bottom of

Worksheet A in completing line 3 of the worksheet. His

completed worksheet is shown later.

Bill's tax-free monthly amount is $100 ($31,000 ÷ 310)

as shown on line 4 of the worksheet. Upon Bill's death, if

Bill hasn't recovered the full $31,000 investment, his

spouse will also exclude $100 from her $600 monthly pay-

ment. The full amount of any annuity payments received

after 310 payments are paid must be included in gross in-

come.

If Bill and his spouse die before 310 payments are

made, an itemized deduction will be allowed for the unrec-

overed cost on the final income tax return of the last to die.

Multiple annuitants. If you and one or more other annui-

tants receive payments at the same time, you exclude

from each annuity payment a pro rata share of the monthly

tax-free amount. Figure your share by taking the following

steps.

1. Complete your worksheet through line 4 to figure the

monthly tax-free amount.

2. Divide the amount of your monthly payment by the to-

tal amount of the monthly payments to all annuitants.

3. Multiply the amount on line 4 of your worksheet by the

amount figured in (2) above. The result is your share

of the monthly tax-free amount.

Replace the amount on line 4 of the worksheet with the

result in (3) above. Enter that amount on line 4 of your

worksheet each year.

General Rule

Under the General Rule, you determine the tax-free part of

each annuity payment based on the ratio of the cost of the

contract to the total expected return. Expected return is

the total amount you and other eligible annuitants can ex-

pect to receive under the contract. To figure it, you must

use life expectancy (actuarial) tables prescribed by the

IRS.

Who must use the General Rule. You must use the

General Rule if you receive pension or annuity payments

from a:

•

Nonqualified plan (such as a private annuity, a pur-

chased commercial annuity, or a nonqualified em-

ployee plan), or

•

Qualified plan if you are age 75 or older on your annu-

ity starting date and your annuity payments are guar-

anteed for at least 5 years.

Annuity starting before November 19, 1996. If your

annuity starting date is after July 1, 1986, and before No-

vember 19, 1996, you had to use the General Rule for ei-

ther circumstance just described. You also had to use it for

any fixed-period annuity. If you didn't have to use the Gen-

eral Rule, you could have chosen to use it. If your annuity

starting date is before July 2, 1986, you had to use the

General Rule unless you could use the 3-year Rule.

If you had to use the General Rule (or chose to use it),

you must continue to use it each year that you recover

your cost.

Who can't use the General Rule. You can't use the

General Rule if you receive your pension or annuity from a

qualified plan and none of the circumstances described in

the preceding discussions apply to you. See Simplified

Method, earlier.

More information. For complete information on using the

General Rule, including the actuarial tables you need, see

Pub. 939.

Taxation of Nonperiodic

Payments

This section of the publication explains how any nonperi-

odic distributions you receive under a pension or annuity

plan are taxed. Nonperiodic distributions are also known

as amounts not received as an annuity. They include all

payments other than periodic payments and corrective

distributions.

For example, the following items are treated as nonperi-

odic distributions.

•

Cash withdrawals.

•

Distributions of current earnings (dividends) on your

investment. However, don't include these distributions

in your income to the extent the insurer keeps them to

pay premiums or other consideration for the contract.

•

Certain loans. See Loans Treated as Distributions,

later.

•

The value of annuity contracts transferred without full

and adequate consideration. See Transfers of Annuity

Contracts, later.

Corrective distributions of excess plan contributions.

Generally, if the contributions made for you during the year

to certain retirement plans exceed certain limits, the ex-

cess is taxable to you. To correct an excess, your plan

may distribute it to you (along with any income earned on

the excess). Although the plan reports the corrective distri-

butions on Form 1099-R, the distribution isn't treated as a

nonperiodic distribution from the plan. It isn't subject to the

allocation rules explained in the following discussion, it

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Worksheet A. Simplified Method Worksheet for Bill Smith

Keep for Your Records

1. Enter the total pension or annuity payments received this year. Also, add this amount to the total

for Form 1040, 1040-SR, or 1040-NR, line 5a ............................................ 1.

$ 14,400

2. Enter your cost in the plan (contract) at the annuity starting date plus any death benefit

exclusion.* See Cost (Investment in the Contract), earlier .................................. 2.

31,000

Note: If your annuity starting date was before this year and you completed this worksheet last

year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if

the amount of your pension or annuity has changed). Otherwise, go to line 3.

3. Enter the appropriate number from Table 1 below. But if your annuity starting date was after

1997 and the payments are for your life and that of your beneficiary, enter the appropriate

number from Table 2 below ............................................................ 3.

310

4. Divide line 2 by the number on line 3 ....................................................

100

5. Multiply line 4 by the number of months for which this year's payments were made. If your

annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10,

and 11. Otherwise, go to line 6 ......................................................... 5.

1,200

6. Enter any amount previously recovered tax free in years after 1986. This is the amount shown on

line 10 of your worksheet for last year ................................................... 6.

-0-

7. Subtract line 6 from line 2 .............................................................

31,000

8. Enter the smaller of line 5 or line 7 ......................................................

1,200

9. Taxable amount for year. Subtract line 8 from line 1. Enter the result, but not less than zero.

Also, add this amount to the total for Form 1040, 1040-SR, or 1040-NR, line 5b. Note: If your

Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. If you

are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers

before entering an amount on your tax return ............................................ 9.

$ 13,200

10. Was your annuity starting date before 1987?

Yes. STOP. Don't complete the rest of this worksheet.

No. Add lines 6 and 8. This is the amount you have recovered tax free through 2023. You will

need this number if you need to fill out this worksheet next year ............................ 10.

1,200

11. Balance of cost to be recovered. Subtract line 10 from line 2. If zero, you won't have to

complete this worksheet next year. The payments you receive next year will generally be fully

taxable ............................................................................. 11.

$ 29,800

* A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996.

Table 1 for Line 3 Above

AND your annuity starting date was—

IF the age at annuity

starting date was...

BEFORE November 19,

1996, enter on line 3...

AFTER November 18,

1996, enter on line 3...

55 or under 300 360

56–60 260 310

61–65 240 260

66–70 170 210

71 or older 120 160

Table 2 for Line 3 Above

IF the combined ages at

annuity starting date were...

THEN enter

on line 3...

110 or under 410

111–120 360

121–130 310

131–140 260

141 or older 210

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can't be rolled over into another plan, and it isn't subject to

the additional tax on early distributions.

If your retirement plan made a corrective distribu-

tion of excess amounts (excess deferrals, excess

contributions, or excess annual additions), your

Form 1099-R should have the code “8,” “B,” “P,” or “E” in

box 7.

For information on plan contribution limits and how to

report corrective distributions of excess contributions, see

Retirement Plan Contributions under Employee Compen-

sation in Pub. 525.

Figuring the Taxable Amount

How you figure the taxable amount of a nonperiodic distri-

bution depends on whether it is made before the annuity

starting date, or on or after the annuity starting date. If it is

made before the annuity starting date, its tax treatment

also depends on whether it is made under a qualified or

nonqualified plan. If it is made under a nonqualified plan,

its tax treatment depends on whether it fully discharges

the contract, is received under certain life insurance or en-

dowment contracts, or is allocable to an investment you

made before August 14, 1982.

You may be able to roll over the taxable amount of

a nonperiodic distribution from a qualified retire-

ment plan into another qualified retirement plan or

a traditional IRA tax free. See Rollovers, later. If you don't

make a tax-free rollover and the distribution qualifies as a

lump-sum distribution, you may be able to elect an op-

tional method of figuring the tax on the taxable amount.

See Lump-Sum Distributions, later.

Annuity starting date. The annuity starting date is either

the first day of the first period for which you receive an an-

nuity payment under the contract or the date on which the

obligation under the contract becomes fixed, whichever is

later.

Distributions of employer securities. If you receive a

distribution of employer securities from a qualified retire-

ment plan, you may be able to defer the tax on the net un-

realized appreciation (NUA) in the securities. The NUA is

the net increase in the securities' value while they were in

the trust. This tax deferral applies to distributions of the

employer corporation's stocks, bonds, registered deben-

tures, and debentures with interest coupons attached.

If the distribution is a lump-sum distribution, tax is de-

ferred on all of the NUA unless you choose to include it in

your income for the year of the distribution.

A lump-sum distribution for this purpose is the distribu-

tion or payment of a plan participant's entire balance

(within a single tax year) from all of the employer's quali-

fied plans of one kind (pension, profit-sharing, or stock bo-

nus plans), but only if paid:

•

Because of the plan participant's death;

•

After the participant reaches age 59

/2;

TIP

•

Because the participant, if an employee, separates

from service; or

•

After the participant, if a self-employed individual, be-

comes totally and permanently disabled.

If you choose to include NUA in your income for

the year of the distribution and the participant was

born before January 2, 1936, you may be able to

figure the tax on the NUA using the optional methods de-

scribed under Lump-Sum Distributions, later.

If the distribution isn't a lump-sum distribution, tax is de-

ferred only on the NUA resulting from employee contribu-

tions other than deductible voluntary employee contribu-

tions.

The NUA on which tax is deferred should be shown in

box 6 of the Form 1099-R you receive from the payer of

the distribution.

When you sell or exchange employer securities with

tax-deferred NUA, any gain is long-term capital gain up to

the amount of the NUA that isn’t included in your basis in

the employer securities. Any gain that is more than the

NUA is long-term or short-term gain, depending on how

long you held the securities after the distribution.

Your basis in the employer securities is the total of the

following amounts.

•

Your contributions to the plan that are attributable to

the securities.

•

Your employer's contributions that were taxed as ordi-

nary income in the year the securities were distrib-

uted.

•

Your NUA in the securities that is attributable to em-

ployer contributions and taxed as ordinary income in

the year the securities were distributed.

How to report. Enter the total amount of a nonperiodic

distribution on Form 1040, 1040-SR, or 1040-NR, line 5a.

Enter the taxable amount of the distribution on Form 1040,

1040-SR, or 1040-NR, line 5b. However, if you make a

tax-free rollover or elect an optional method of figuring the

tax on a lump-sum distribution, see How to report in the

discussions of those tax treatments, later.

Distribution On or After Annuity Starting

Date

If you receive a nonperiodic payment from your annuity

contract on or after the annuity starting date, you must

generally include all of the payment in gross income. For

example, a cost-of-living increase in your pension after the

annuity starting date is an amount not received as an an-

nuity and, as such, is fully taxable.

Reduction in subsequent payments. If the annuity pay-

ments you receive are reduced because you received a

nonperiodic distribution, you can exclude part of the non-

periodic distribution from gross income. The part you can

exclude is equal to your cost in the contract reduced by

any tax-free amounts you previously received under the

contract, multiplied by a fraction. The numerator is the re-

duction in each annuity payment because of the

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nonperiodic distribution. The denominator is the full unre-

duced amount of each annuity payment originally provi-

ded for.

Single-sum in connection with the start of annuity

payments. If you receive a single-sum payment on or af-

ter your annuity starting date in connection with the start of

annuity payments for which you must use the Simplified

Method, treat the single-sum payment as if it were re-

ceived before your annuity starting date. (See Simplified

Method under Taxation of Periodic Payments, earlier, for

information on its required use.) Follow the rules dis-

cussed under Distribution Before Annuity Starting Date

From a Qualified Plan, later.

Distribution in full discharge of contract. You may re-

ceive an amount on or after the annuity starting date that

fully satisfies the payer's obligation under the contract.

The amount may be a refund of what you paid for the con-

tract or for the complete surrender, redemption, or matur-

ity of the contract. Include the amount in gross income

only to the extent that it exceeds the remaining cost of the

contract.

Distribution Before Annuity Starting Date

From a Qualified Plan

If you receive a nonperiodic distribution before the annuity

starting date from a qualified retirement plan, you can gen-

erally allocate only part of it to the cost of the contract. You

exclude from your gross income the part that you allocate

to the cost. You include the remainder in your gross in-

come.

For this purpose, a qualified retirement plan is a:

•

Qualified employee plan (or annuity contract pur-

chased by such a plan),

•

Qualified employee annuity plan, or

•

Tax-sheltered annuity plan (403(b) plan).

Use the following formula to figure the tax-free amount

of the distribution.

Amount

received

Cost of contract

Tax-free

amount

Account balance

For this purpose, your account balance includes only

amounts to which you have a nonforfeitable right (a right

that can't be taken away).

Example. Ann Brown received a $50,000 distribution

from her retirement plan before her annuity starting date.

She had $10,000 invested (cost) in the plan. Her account

balance was $100,000. She can exclude $5,000 of the

$50,000 distribution, figured as follows.

$50,000 x

$10,000

= $5,000

$100,000

Defined contribution plan. A defined contribution plan

is a plan in which you have an individual account. Your

benefits are based only on the amount contributed to the

account and the income, gains or losses, etc., which may

be allocated to that account. Under a defined contribution

plan, your contributions (and income allocable to those

contributions) may be treated as a separate contract for

figuring the taxable part of any distribution. The employer

contributions (and income allocable to those contribu-

tions) wouldn't be considered part of that separate con-

tract.

Example. Ryan participates in a defined contribution

plan that treats employee contributions and earnings allo-

cable to them as a separate contract. He received a

non-annuity distribution of $5,000 before his annuity start-

ing date. He had made after-tax contributions of $10,000.

The earnings allocable to his contributions were $2,500.

His employer also contributed $10,000. The earnings allo-

cable to the employer contributions were $2,500.

To determine the tax-free amount of Ryan's distribution,

use the same formula shown earlier. However, because

employee contributions are treated as a separate contract,

the account balance would be the total of Ryan's contribu-

tions and allocable earnings.

Thus, the tax-free amount would be $5,000 × ($10,000

÷ $12,500) = $4,000. The taxable amount would be

$1,000 ($5,000 − $4,000).

If the employee contributions weren't treated as a sepa-

rate contract, the tax-free amount would be $2,000

($5,000 × ($10,000 ÷ $25,000)) and the taxable amount

would be $3,000 ($5,000 − $2,000).

Plans that permitted withdrawal of employee contri-

butions. If you contributed before 1987 to a pension plan

that, as of May 5, 1986, permitted you to withdraw your

contributions before your separation from service, any dis-

tribution before your annuity starting date is tax free to the

extent that it, when added to earlier distributions received

after 1986, doesn't exceed your cost as of December 31,

1986. Apply the allocation described in the preceding dis-

cussion only to any excess distribution.

Distribution Before Annuity Starting Date

From a Nonqualified Plan

If you receive a nonperiodic distribution before the annuity

starting date from a plan other than a qualified retirement

plan (nonqualified plan), it is allocated first to earnings (the

taxable part) and then to the cost of the contract (the

tax-free part). This allocation rule applies, for example, to

a commercial annuity contract you bought directly from

the issuer. You include in your gross income the smaller

of:

•

The nonperiodic distribution, or

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•

The amount by which the cash value of the contract

(figured without considering any surrender charge) im-

mediately before you receive the distribution exceeds

your investment in the contract at that time.

Example. You bought an annuity from an insurance

company. Before the annuity starting date under your an-

nuity contract, you received a $7,000 distribution. At the

time of the distribution, the annuity had a cash value of

$16,000 and your investment in the contract was $10,000.

The distribution is allocated first to earnings, so you must

include $6,000 ($16,000 − $10,000) in your gross income.

The remaining $1,000 ($7,000 − $6,000) is a tax-free re-

turn of part of your investment.

Exception to allocation rule. Certain nonperiodic distri-

butions received before the annuity starting date aren't

subject to the allocation rule in the preceding discussion.

Instead, you include the amount of the payment in gross

income only to the extent that it exceeds the cost of the

contract.

This exception applies to the following distributions.

•

Distributions in full discharge of a contract that you re-

ceive as a refund of what you paid for the contract or

for the complete surrender, redemption, or maturity of

the contract.

•

Distributions from life insurance or endowment con-

tracts (other than modified endowment contracts, as

defined in section 7702A of the Internal Revenue

Code) that aren't received as an annuity under the

contracts.

•

Distributions under contracts entered into before Au-

gust 14, 1982, to the extent that they are allocable to

your investment before August 14, 1982.

If you bought an annuity contract before August 14,

1982, and made investments both before and after August

14, 1982, the distributed amounts are allocated to your in-

vestment or to earnings in the following order.

1. The part of your investment that was made before Au-

gust 14, 1982. This part of the distribution is tax free.

2. The earnings on the part of your investment that was

made before August 14, 1982. This part of the distri-

bution is taxable.

3. The earnings on the part of your investment that was

made after August 13, 1982. This part of the distribu-

tion is taxable.

4. The part of your investment that was made after Au-

gust 13, 1982. This part of the distribution is tax free.

The taxable portion of distributions from nonquali-

fied plans is subject to the NIIT. See the Instruc-

tions for Form 8960.

Distribution of U.S. savings bonds. If you receive U.S.

savings bonds in a taxable distribution from a retirement

or profit-sharing plan, report the value of the bonds at the

time of distribution as income. The value of the bonds in-

cludes accrued interest. When you cash the bonds, your

CAUTION

Form 1099-INT will show the total interest accrued, includ-

ing the part you reported when the bonds were distributed

to you. For information on how to adjust your interest in-

come for U.S. savings bond interest you previously repor-

ted, see How To Report Interest Income in chapter 1 of

Pub. 550, Investment Income and Expenses.

Loans Treated as Distributions

If you borrow money from your retirement plan, you must

treat the loan as a nonperiodic distribution from the plan

unless it qualifies for the exception to this loan-as-distribu-

tion rule explained later. This treatment also applies to any

loan under a contract purchased under your retirement

plan, and to the value of any part of your interest in the

plan or contract that you pledge or assign (or agree to

pledge or assign). It applies to loans from both qualified

and nonqualified plans, including commercial annuity con-

tracts you purchase directly from the issuer. Further, it ap-

plies if you renegotiate, extend, renew, or revise a loan

that qualified for the exception below if the altered loan

doesn't qualify. In that situation, you must treat the out-

standing balance of the loan as a distribution on the date

of the transaction.

You determine how much of the loan is taxable using

the allocation rules for nonperiodic distributions discussed

under Figuring the Taxable Amount, earlier. The taxable

part may be subject to the additional tax on early distribu-

tions. It isn't an eligible rollover distribution and doesn't

qualify for the 10-year tax option.

Exception for qualified plan, 403(b) plan, and govern-

mental plan loans. At least part of certain loans under a

qualified employee plan, qualified employee annuity,

tax-sheltered annuity (403(b) plan), or governmental plan

isn't treated as a distribution from the plan. This exception

to the loan-as-distribution rule applies only to a loan that

either:

•

Is used to acquire your main home, or

•

Must be repaid within 5 years.

If a loan qualifies for this exception, you must treat it as

a nonperiodic distribution only to the extent that the loan,

when added to the outstanding balances of all your loans

from all plans of your employer (and certain related em-

ployers, defined later), exceeds the lesser of:

•

$50,000; or

•

Half the present value (but not less than $10,000) of

your nonforfeitable accrued benefit under the plan, de-

termined without regard to any accumulated deducti-

ble employee contributions.

You must reduce the $50,000 amount if you already

had an outstanding loan from the plan during the 1-year

period ending the day before you took out the loan. The

amount of the reduction is your highest outstanding loan

balance during that period minus the outstanding balance

on the date you took out the new loan. If this amount is

zero or less, ignore it.

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Substantially level payments. To qualify for the ex-

ception to the loan-as-distribution rule, the loan must re-

quire substantially level payments at least quarterly over

the life of the loan. If the loan is from a designated Roth

account, the payments must be satisfied separately for

that part of the loan and for the part of the loan from other

accounts under the plan. This level payment requirement

doesn't apply to the period in which you are on a leave of

absence without pay or with a rate of pay that is less than

the required installment. Generally, this leave of absence

must not be longer than 1 year. You must repay the loan

within 5 years from the date of the loan (unless the loan

was used to acquire your main home). Your installment

payments after the leave ends must not be less than your

original payments.

However, if your plan suspends your loan payments for

any part of the period during which you are in the uni-

formed services, you won't be treated as having received

a distribution even if the suspension is for more than 1

year and the term of the loan is extended. The loan pay-

ments must resume upon completion of such period and

the loan must be repaid in substantially level installments

within 5 years from the date of the loan (unless the loan

was used to acquire your main home) plus the period of

suspension.

Example 1. On May 1, 2023, you borrowed $40,000

from your retirement plan. The loan was to be repaid in

level monthly installments over 5 years. The loan wasn't

used to acquire your main home. You make nine monthly

payments and start an unpaid leave of absence that lasts

for 12 months. You weren't in the uniformed services dur-

ing this period. After the leave period ends and you re-

sume active employment, you resume making repayments

on the loan. You must repay this loan by April 30, 2028 (5

years from the date of this loan). You can increase your

monthly installments or you can make the original monthly

installments and on April 30, 2028, pay the balance.

Example 2. The facts are the same as in Example 1,

except that you are on a leave of absence performing

service in the uniformed services for 2 years. The loan

payments were suspended for that period. You must re-

sume making loan payments at the end of that period and

the loan must be repaid by April 30, 2030 (5 years from

the date of the loan plus the period of suspension, which

is 2 years in this example).

Related employers and related plans. In determin-

ing loan balances for purposes of applying the exception

to the loan-as-distribution rule, you must add the balances

of all your loans from all plans of your employer and from

all plans of your employers who are treated as a single

employer. Treat separate employers' plans as plans of a

single employer if they are treated that way under other

qualified retirement plan rules because the employers are

related.

Employers are related if they are:

•

Members of a controlled group of corporations,

•

Businesses under common control, or

•

Members of an affiliated service group.

An affiliated service group is generally two or more

service organizations whose relationship involves an own-

ership connection. Their relationship also includes the

regular or significant performance of services by one or-

ganization for or in association with another.

Denial of interest deduction. If the loan from a quali-

fied plan isn't treated as a distribution because the excep-

tion applies, you can't deduct any of the interest on the

loan during any period that:

•

The loan is secured by amounts from elective defer-

rals under a qualified cash or deferred arrangement

(section 401(k) plan) or a salary reduction agreement

to purchase a tax-sheltered annuity, or

•

You are a key employee as defined in section 416(i) of

the Internal Revenue Code.

Reporting by plan. If your loan is treated as a distribu-

tion (deemed distribution), you should receive a Form

1099-R showing code “L” in box 7. If your loan is treated

as a qualified plan loan offset, you should receive a Form

1099-R showing code “M” in box 7. If your loan is not a

qualified plan loan offset, no code will be reported on

Form 1099-R for the offset.

Effect on investment in the contract. If your loan is

treated as a distribution, you must reduce your investment

in the contract to the extent that the distribution is tax free

under the allocation rules for qualified plans, explained

earlier. Repayments of the loan increase your investment

in the contract to the extent that the distribution is taxable

under those rules.

If you receive a loan under a nonqualified plan other

than a 403(b) plan, including a commercial annuity con-

tract that you purchase directly from the issuer, you in-

crease your investment in the contract to the extent that

the distribution is taxable under the general allocation rule

for nonqualified plans, explained earlier. Repayments of

the loan don't affect your investment in the contract. How-

ever, if the distribution is excepted from the general alloca-

tion rule (for example, because it is made under a contract

entered into before August 14, 1982), you reduce your in-

vestment in the contract to the extent that the distribution

is tax free and increase it for loan repayments to the extent

that the distribution is taxable.

Transfers of Annuity Contracts

If you transfer without full and adequate consideration an

annuity contract issued after April 22, 1987, you are trea-

ted as receiving a nonperiodic distribution. The distribu-

tion equals the excess of:

•

The cash surrender value of the contract at the time of

transfer, over

•

Your investment in the contract at that time.

This rule doesn't apply to transfers between spouses or

transfers between former spouses incident to a divorce.

Tax-free exchange. No gain or loss is recognized on an

exchange of an annuity contract for another annuity

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contract if the insured or annuitant remains the same.

However, if an annuity contract is exchanged for a life in-

surance or endowment contract, any gain due to interest

accumulated on the contract is ordinary income.

If you transfer a full or partial interest in a tax-sheltered

annuity that isn't subject to restrictions on early distribu-

tions to another tax-sheltered annuity, the transfer quali-

fies for nonrecognition of gain or loss.

If you exchange an annuity contract issued by a life in-

surance company that is subject to a rehabilitation, con-

servatorship, or similar state proceeding for an annuity

contract issued by another life insurance company, the ex-

change qualifies for nonrecognition of gain or loss. The

exchange is tax free even if the new contract is funded by

two or more payments from the old annuity contract. This

also applies to an exchange of a life insurance contract for

a life insurance, endowment, annuity, or qualified

long-term care insurance contract.

If you transfer part of the cash surrender value of an ex-

isting annuity contract for a new annuity contract issued by

another insurance company, the transfer qualifies for non-

recognition of gain or loss. The funds must be transferred

directly between the insurance companies. Your invest-

ment in the original contract immediately before the ex-

change is allocated between the contracts based on the

percentage of the cash surrender value allocated to each

contract.

Example. You own an annuity contract issued by ABC

Insurance. You assign 60% of the cash surrender value of

that contract to DEF Insurance to purchase an annuity

contract. The funds are transferred directly between the

insurance companies. You don't recognize any gain or

loss on the transaction. After the exchange, your invest-

ment in the new contract is equal to 60% of your invest-

ment in the old contract immediately before the exchange.

Your investment in the old contract is equal to 40% of your

original investment in that contract.

Tax-free transfers for certain cash distributions. If

you receive cash from the surrender of one contract and

invest the cash in another contract, you generally don't

have a tax-free transfer. However, you can elect to receive

tax-free treatment for a cash distribution from an insur-

ance company that is subject to a rehabilitation, conserva-

torship, insolvency, or similar state proceeding if all of the

following conditions are met.

•

You withdraw all the cash to which you are entitled.

•

You reinvest the proceeds within 60 days in a single

contract issued by another insurance company.

•

You assign all rights to any future distributions to the

new issuer if the cash distribution is restricted by the

state proceeding to an amount that is less than re-

quired for full settlement.

•

An exchange of these contracts would otherwise qual-

ify as a tax-free transfer.

You must give the new issuer a statement containing

the following information.

•

The amount of cash distributed under the old contract.

•

The amount of cash reinvested in the new contract.

•

Your investment in the old contract on the date of the

initial distribution.

You must also attach the following items to your timely

filed income tax return for the year of the initial distribution.

•

A copy of the statement you gave to the new issuer.

•

A statement that contains the words “ELECTION UN-

DER REV. PROC. 92-44,” the new issuer's name, and

the policy number or similar identifying information for

the new contract.

Tax-free exchange reported on Form 1099-R. If you

make a tax-free exchange of an annuity contract for an-

other annuity contract issued by a different company, the

exchange will be shown on Form 1099-R with code “6” in

box 7. You need not report this on your tax return.

Date of purchase of contract received in a tax-free

exchange. If you acquire an annuity contract in a tax-free

exchange for another annuity contract, its date of pur-

chase is the date you purchased the annuity you ex-

changed. This rule applies for determining if the annuity

qualifies for exemption from the tax on early distributions

as an immediate annuity. See Tax on Early Distributions,

later.

Lump-Sum Distributions

This section on lump-sum distributions only ap-

plies if the plan participant was born before Janu-

ary 2, 1936. If the plan participant was born after

January 1, 1936, the taxable amount of this nonperiodic

payment is reported as discussed earlier.

A lump-sum distribution is the distribution or payment in

1 tax year of a plan participant's entire balance from all of

the employer's qualified plans of one kind (for example,

pension, profit-sharing, or stock bonus plans). Addition-

ally, a lump-sum distribution is a distribution that was paid:

•

Because of the plan participant's death;

•

After the participant reaches age 59

/2;

•

Because the participant, if an employee, separates

from service; or

•

After the participant, if a self-employed individual, be-

comes totally and permanently disabled.

A distribution from a nonqualified plan (such as a privately

purchased commercial annuity or a section 457 deferred

compensation plan of a state or local government or

tax-exempt organization) can't qualify as a lump-sum dis-

tribution.

The participant's entire balance from a plan doesn't in-

clude certain forfeited amounts. It also doesn't include any

deductible voluntary employee contributions allowed by

the plan after 1981 and before 1987.

If you receive a lump-sum distribution from a qualified

employee plan or qualified employee annuity and the plan

participant was born before January 2, 1936, you may be

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able to elect optional methods of figuring the tax on the

distribution. The part from active participation in the plan

before 1974 may qualify as capital gain subject to a 20%

tax rate. The part from participation after 1973 (and any

part from participation before 1974 that you don't report as

capital gain) is ordinary income. You may be able to use

the 10-year tax option, discussed later, to figure tax on the

ordinary income part.

Each individual, estate, or trust who receives part of a

lump-sum distribution on behalf of a plan participant who

was born before January 2, 1936, can choose whether to

elect the optional methods for the part each received.

However, if two or more trusts receive the distribution, the

plan participant or the personal representative of a de-

ceased participant must make the choice.

Use Form 4972 to figure the separate tax on a

lump-sum distribution using the optional methods. The tax

figured on Form 4972 is added to the regular tax figured

on your other income. This may result in a smaller tax than

you would pay by including the taxable amount of the dis-

tribution as ordinary income in figuring your regular tax.

Alternate payee under qualified domestic relations

order. If you receive a distribution as an alternate payee

under a qualified domestic relations order (discussed ear-

lier under General Information), you may be able to

choose the optional tax computations for it. You can make

this choice for a distribution that would be treated as a

lump-sum distribution had it been received by your spouse

or former spouse (the plan participant). However, for this

purpose, the balance to your credit doesn't include any

amount payable to the plan participant.

If you choose an optional tax computation for a distribu-

tion received as an alternate payee, this choice won't af-

fect any election for distributions from your own plan.

More than one recipient. One or all of the recipients of a

lump-sum distribution can use the optional tax computa-

tions. See Multiple recipients of a lump-sum distribution in

the instructions for Form 4972.

Reemployment. A separated employee's vested per-

centage in their retirement benefit may increase if they are

rehired by the employer within 5 years following separa-

tion from service. This possibility doesn't prevent a distri-

bution made before reemployment from qualifying as a

lump-sum distribution. However, if the employee elected

an optional method of figuring the tax on the distribution

and their vested percentage in the previous retirement

benefit increases after reemployment, the employee must

recapture the tax saved. This is done by increasing the tax

for the year in which the increase in vesting first occurs.

Distributions that don't qualify. The following distribu-

tions don't qualify as lump-sum distributions for the capital

gain treatment or 10-year tax option.

•

The part of a distribution not rolled over if the distribu-

tion is partially rolled over to another qualified plan or

an IRA.

•

Any distribution if an earlier election to use either the

5- or 10-year tax option had been made after 1986 for

the same plan participant.

•

U.S. Retirement Plan Bonds distributed with a lump

sum.

•

Any distribution made during the first 5 tax years that

the participant was in the plan, unless it was made be-

cause the participant died.

•

The current actuarial value of any annuity contract in-

cluded in the lump sum. (Box 8 of Form 1099-R

should show this amount, which you use only to figure

tax on the ordinary income part of the distribution.)

•

Any distribution to a 5% owner that is subject to penal-

ties under section 72(m)(5)(A) of the Internal Revenue

Code.

•

A distribution from an IRA.

•

A distribution from a tax-sheltered annuity (section

403(b) plan).

•

A distribution of the redemption proceeds of bonds

rolled over tax free to a qualified pension plan, etc.,

from a qualified bond purchase plan.

•

A distribution from a qualified plan if the participant or

their surviving spouse previously received an eligible

rollover distribution from the same plan (or another

plan of the employer that must be combined with that

plan for the lump-sum distribution rules) and the previ-

ous distribution was rolled over tax free to another

qualified plan or an IRA.

•

A distribution from a qualified plan that received a roll-

over after 2001 from an IRA (other than a conduit

IRA), a governmental section 457(b) plan, or a section

403(b) tax-sheltered annuity on behalf of the plan par-

ticipant.

•

A distribution from a qualified plan that received a roll-

over after 2001 from another qualified plan on behalf

of that plan participant's surviving spouse.

•

A corrective distribution of excess deferrals, excess

contributions, excess aggregate contributions, or ex-

cess annual additions.

•

A lump-sum credit or payment from the CSRS (or the

FERS).

How to treat the distribution. If you receive a lump-sum

distribution, you may have the following options for how to

treat the taxable part.

•

Report the part of the distribution from participation

before 1974 as a capital gain (if you qualify) and the

part from participation after 1973 as ordinary income.

•

Report the part of the distribution from participation

before 1974 as a capital gain (if you qualify) and use

the 10-year tax option to figure the tax on the part from

participation after 1973 (if you qualify).

•

Use the 10-year tax option to figure the tax on the total

taxable amount (if you qualify).

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•

Roll over all or part of the distribution. See Rollovers,

later. No tax is currently due on the part rolled over.

Report any part not rolled over as ordinary income.

•

Report the entire taxable part of the distribution as or-

dinary income on your tax return.

The first three options are explained in the following

discussions.

Electing optional lump-sum treatment. You can

choose to use the 10-year tax option or capital gain treat-

ment only once after 1986 for any plan participant. If you

make this choice, you can't use either of these optional

treatments for any future distributions for the participant.

Complete Form 4972 and attach it to your Form 1040 or

1040-SR if you choose to use one or both of the tax op-

tions. If you received more than one lump-sum distribution

for a plan participant during the year, you must add them

together in your computation. If you and your spouse are

filing a joint return and you both have received a lump-sum

distribution, each of you should complete a separate Form

4972.

Time for choosing. You must decide to use the tax

options before the end of the time, including extensions,

for making a claim for credit or refund of tax. This is usu-

ally 3 years after the date the return was filed or 2 years

after the date the tax was paid, whichever is later. (Re-

turns filed before their due dates are considered filed on

their due dates.)

Changing your mind. You can change your mind and

decide not to use the tax options within the time period

just discussed. If you change your mind, file Form 1040-X,

Amended U.S. Individual Income Tax Return, with a state-

ment saying you don't want to use the optional lump-sum

treatment. Generally, you must pay any additional tax due

to the change with the Form 1040-X.

How to report. If you elect capital gain treatment (but

not the 10-year tax option) for a lump-sum distribution, in-

clude the ordinary income part of the distribution on Form

1040, 1040-SR, or 1040-NR, lines 5a and 5b. Enter the

capital gain part of the distribution in Part II of Form 4972.

Include the tax from Form 4972, line 7, in the total on Form

1040, 1040-SR, or 1040-NR, line 16.

If you elect the 10-year tax option, don't include any

part of the distribution on Form 1040, 1040-SR, or

1040-NR, lines 5a and 5b. Report the entire distribution in

Part III of Form 4972 or, if you also elect capital gain treat-

ment, report the capital gain part in Part II and the ordinary

income part in Part III. Include the tax from Form 4972,

line 30, in the total on Form 1040, 1040-SR, or 1040-NR,

line 16.

Taxable and tax-free parts of the distribution. The

taxable part of a lump-sum distribution is the employer's

contributions and income earned on your account. You

may recover your cost in the lump sum and any NUA in

employer securities tax free.

Cost. In general, your cost is the total of:

•

The plan participant's nondeductible contributions to

the plan,

•

The plan participant's taxable costs of any life insur-

ance contract distributed,

•

Any employer contributions that were taxable to the

plan participant, and

•

Repayments of any loans that were taxable to the plan

participant.

You must reduce this cost by amounts previously distrib-

uted tax free.

Net unrealized appreciation (NUA). The NUA in em-

ployer securities (box 6 of Form 1099-R) received as part

of a lump-sum distribution is generally tax free until you

sell or exchange the securities. (See Distributions of em-

ployer securities under Figuring the Taxable Amount, ear-

lier.) However, if you choose to include the NUA in your in-

come for the year of the distribution and there is an

amount in box 3 of Form 1099-R, part of the NUA will qual-

ify for capital gain treatment. Use the NUA Worksheet in

the Instructions for Form 4972 to find the part that quali-

fies.

Losses. You may be able to claim a loss on your return if

you receive a lump-sum distribution that is less than the

plan participant's cost. You must receive the distribution

entirely in cash or worthless securities. The amount you

can claim is the difference between the participant's cost

and the amount of the cash distribution, if any.

However, for tax years 2018 through 2025, miscellane-

ous itemized deductions subject to the 2%-of-adjus-

ted-gross-income limit are suspended and therefore not

deductible on Schedule A (Form 1040).

A loss under a nonqualified plan, such as a com-

mercial variable annuity, is deductible in the same

manner as a lump-sum distribution.

Capital Gain Treatment

Capital gain treatment applies only to the taxable part of a

lump-sum distribution resulting from participation in the

plan before 1974. The amount treated as capital gain is

taxed at a 20% rate. You can elect this treatment only

once for any plan participant, and only if the plan partici-

pant was born before January 2, 1936.

Complete Part II of Form 4972 to choose the 20% capi-

tal gain election.

Figuring the capital gain and ordinary income parts.

Generally, figure the capital gain and ordinary income

parts of a lump-sum distribution by using the following for-

mulas.

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Capital Gain:

Total Taxable

Amount

Months of active participation before 1974

Total months of active participation

Ordinary Income:

Total Taxable

Amount

Months of active participation after 1973

Total months of active participation

In figuring the months of active participation before

1974, count as 12 months any part of a calendar year in

which the plan participant actively participated under the

plan. For active participation after 1973, count as 1 month

any part of a calendar month in which the participant ac-

tively participated in the plan.

The capital gain part should be shown in box 3 of Form

1099-R or other statement given to you by the payer of the

distribution.

Reduction for federal estate tax. If any federal es-

tate tax (discussed under Survivors and Beneficiaries,

later) was paid on the lump-sum distribution, you must de-

crease the capital gain by the amount of estate tax appli-

cable to it. Follow the Form 4972 instructions for Part II,

line 6, to figure the part of the estate tax applicable to the

capital gain that is used to reduce the capital gain. If you

don't make the capital gain election, enter on line 18 of

Part III the estate tax attributable to the total lump-sum dis-

tribution. For information on how to figure the estate tax at-

tributable to the lump-sum distribution, see the Instruc-

tions for Form 706, United States Estate (and

Generation-Skipping Transfer) Tax Return, or contact the

administrator of the decedent's estate.

10-Year Tax Option

The 10-year tax option is a special formula used to figure

a separate tax on the ordinary income part of a lump-sum

distribution. You pay the tax only once, for the year in

which you receive the distribution, not over the next 10

years. You can elect this treatment only once for any plan

participant, and only if the plan participant was born be-

fore January 2, 1936.

The ordinary income part of the distribution is the

amount shown in box 2a of the Form 1099-R given to you

by the payer, minus the amount, if any, shown in box 3.

You can also treat the capital gain part of the distribution

(box 3 of Form 1099-R) as ordinary income for the 10-year

tax option if you don't choose capital gain treatment for

that part.

Complete Part III of Form 4972 to choose the 10-year

tax option. You must use the special Tax Rate Schedule

shown in the instructions for Part III to figure the tax.

Examples

The following examples show how to figure the separate

tax on Form 4972.

Example 1. Robert C. Smith, who was born in 1935,

retired from Crabtree Corporation in 2023. He withdrew

the entire amount to his credit from the company's quali-

fied pension plan. In December 2023, he received a total

distribution of $175,000 (the $25,000 tax-free part of the

distribution consisting of employee contributions plus the

$150,000 taxable part of the distribution consisting of em-

ployer contributions and earnings on all contributions).

The payer gave Robert a Form 1099-R (shown below),

which shows the capital gain part of the taxable distribu-

tion (the part attributable to participation before 1974) to

be $10,000. Robert elects 20% capital gain treatment for

this part. He enters $10,000 on Form 4972, line 6, and

$2,000 ($10,000 × 20% (0.20)) on line 7.

The ordinary income part of the taxable distribution is

$140,000 ($150,000 – $10,000). Robert elects to figure

the tax on this part using the 10-year tax option. He enters

$140,000 on Form 4972, line 8. Then, he completes the

rest of Form 4972 and includes the tax of $24,270 in the

total on Form 1040, 1040-SR, or 1040-NR, line 16. See

Robert’s filled-in Form 4972, later.

Publication 575 (2023) 23

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Form 1099-R

2023

Distributions From

Pensions, Annuities,

Retirement or

Proﬁt-Sharing Plans,

IRAs, Insurance

Contracts, etc.

Department of the Treasury - Internal Revenue Service

Copy B

Report this

income on your

federal tax

return. If this

form shows

federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the IRS.

OMB No. 1545-0119

CORRECTED (if checked)

PAYER’S name, street address, city or town, state or province,

country, ZIP or foreign postal code, and telephone no.

PAYER’S TIN RECIPIENT’S TIN

RECIPIENT’S name

Street address (including apt. no.)

City or town, state or province, country, and ZIP or foreign postal code

Account number (see instructions)

1 Gross distribution

2a Taxable amount

2b Taxable amount

not determined

Total

distribution

3 Capital gain (included in

box 2a)

4 Federal income tax

withheld

Employee contributions/

Designated Roth

contributions or

insurance premiums

6 Net unrealized

appreciation in

employer’s securities

7 Distribution

code(s)

IRA/

SEP/

SIMPLE

8 Other

Your percentage of total

distribution

Total employee contributions

10 Amount allocable to IRR

within 5 years

1st year of desig.

Roth contrib.

FATCA ling

requirement

13 Date of

payment

14 State tax withheld

15 State/Payer’s state no. 16 State distribution

17 Local tax withheld

18 Name of locality 19 Local distribution

Form 1099-R

www.irs.gov/Form1099R

Crabtree Corporation Employees’ Pension Plan

1111 Main Street

Anytown, Texas 75000

10-0000000 002-00-XXXX

Robert C. Smith

911 Mill Way

Anytown, Texas 75000

175000.00

150000.00

10000.00 30000.00

25000.00

24 Publication 575 (2023)

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Robert C. Smith 002-00-XXXX

√

10,000

2,000

140,000

-0-

140,000

14,000

2,227

22,270

24,270

Form 4972

2023

Tax on Lump-Sum Distributions

(From Qualiﬁed Plans of Participants Born Before January 2, 1936)

Department of the Treasury

Internal Revenue Service

Attach to Form 1040, 1040-SR, 1040-NR, or 1041.

Go to www.irs.gov/Form4972 for the latest information.

OMB No. 1545-0193

Attachment

Sequence No.

Name of recipient of distribution Identifying number

Part I

Complete this part to see if you can use Form 4972

1 Was this a distribution of a plan participant’s entire balance (excluding deductible voluntary employee

contributions and certain forfeited amounts) from all of an employer’s qualied plans of one kind (for

example, pension, prot-sharing, or stock bonus)? If “No,” don’t use this form . . ... ... . .

Yes No

2 Did you roll over any part of the distribution? If “Yes,” don’t use this form . . ... ... ... 2

3 Was this distribution paid to you as a beneciary of a plan participant who was born before January 2, 1936? 3

4 Were you (a) a plan participant who received this distribution, (b) born before January 2, 1936, and (c) a

participant in the plan for at least 5 years before the year of the distribution? . . ... . . ...

If you answered “No” to both questions 3 and 4, don’t use this form.

5 a Did you use Form 4972 after 1986 for a previous distribution from your own plan? If “Yes,” don’t use this

form for a 2023 distribution from your own plan . . ... ... ... .... . . ...

b If you are receiving this distribution as a beneciary of a plan participant who died, did you use Form 4972

for a previous distribution received as a beneciary of that participant after 1986? If “Yes,” don’t use this

form for this distribution . . ... . ... .... . . .............

Part II

Complete this part to choose the 20% capital gain elections (see instructions)

6 Capital gain part from Form 1099-R, box 3 ..... . . ............ .

7 Multiply line 6 by 20% (0.20) . . ...... ... .... . . ..... . . 7

If you also choose to use Part III, go to line 8. Otherwise, include the amount from line 7 in the total

on Form 1040, 1040-SR, or 1040-NR, line 16, or Form 1041, Schedule G, line 1b. Be sure to check

box 2 on Form 1040, 1040-SR, or 1040-NR, line 16.

Part III

Complete this part to choose the 10-year tax option (see instructions)

8 If you completed Part II, enter the amount from Form 1099-R, box 2a, minus box 3. If you didn’t

complete Part II, enter the amount from box 2a. Multiple recipients (and recipients who elect to

include net unrealized appreciation (NUA) in taxable income), see instructions . . ... ...

9 Death benet exclusion for a beneciary of a plan participant who died before August 21, 1996 . . 9

10 Total taxable amount. Subtract line 9 from line 8 . . ... ... ... .... . . . 10

11 Current actuarial value of annuity from Form 1099-R, box 8. If none, enter -0- . . ... . . . 11

12 Adjusted total taxable amount. Add lines 10 and 11. If this amount is $70,000 or more, skip lines 13

through 16, enter this amount on line 17, and go to line 18 . . ... ... ... ....

13 Multiply line 12 by 50% (0.50), but don’t enter more than $10,000 . . . . 13

14 Subtract $20,000 from line 12. If line 12 is $20,000 or

less, enter -0- . . .... ...... .

15 Multiply line 14 by 20% (0.20) . . ...... ... .... . 15

16 Minimum distribution allowance. Subtract line 15 from line 13 . . ... ... ... . . 16

17 Subtract line 16 from line 12 . . ... . .... . . ..... . . ...... 17

18 Federal estate tax attributable to lump-sum distribution . . ... ... ... .... 18

19 Subtract line 18 from line 17. If line 11 is zero, skip lines 20 through 22 and go to line 23 . . . . 19

20 Divide line 11 by line 12 and enter the result as a decimal (rounded to at least

three places) . . ... . ..... . ..... . . ...

21 Multiply line 16 by the decimal on line 20 ..... . . ..... 21

22 Subtract line 21 from line 11 . . ...... ... .... . 22

23 Multiply line 19 by 10% (0.10) . . ...... ... .... . . ..... . . 23

24 Tax on amount on line 23. Use the Tax Rate Schedule in the instructions . . ... ... . . 24

25 Multiply line 24 by 10.0. If line 11 is zero, skip lines 26 through 28, enter this amount on line 29, and

go to line 30 . . ... . ....... . . ...............

26 Multiply line 22 by 10% (0.10) . . ...... ... .... . 26

27 Tax on amount on line 26. Use the Tax Rate Schedule in the instructions . . 27

28 Multiply line 27 by 10.0 . . .... ............. . . ..... 28

29 Subtract line 28 from line 25. Multiple recipients, see instructions . . ... ... ... . 29

30 Tax on lump-sum distribution. Add lines 7 and 29. Also, include this amount in the total on Form

1040, 1040-SR, or 1040-NR, line 16 (check box 2), or Form 1041, Schedule G, line 1b . . ...

For Paperwork Reduction Act Notice, see instructions.

Cat. No. 13187U

Form 4972 (2023)

Publication 575 (2023) 25

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Example 2. Mary Brown, who was born in 1935, sold

her business in 2023. She withdrew her entire interest in

the qualified profit-sharing plan she had set up as the sole

proprietor.

The cash part of the distribution, $160,000, is all ordi-

nary income and is shown on her Form 1099-R below.

She chooses to figure the tax on this amount using the

10-year tax option. Mary also received an annuity contract

as part of the distribution from the plan. Box 8 of Form

1099-R shows that the current actuarial value of the annu-

ity is $10,000. She enters these figures on Form 4972

(shown later).

After completing Form 4972, she includes the tax of

$28,070 in the total on Form 1040, 1040-SR, or 1040-NR,

line 16.

Form 1099-R

2023

Distributions From

Pensions, Annuities,

Retirement or

Proﬁt-Sharing Plans,

IRAs, Insurance

Contracts, etc.

Department of the Treasury - Internal Revenue Service

Copy B

Report this

income on your

federal tax

return. If this

form shows

federal income

tax withheld in

box 4, attach

this copy to

your return.

This information is

being furnished to

the IRS.

OMB No. 1545-0119

CORRECTED (if checked)

PAYER’S name, street address, city or town, state or province,

country, ZIP or foreign postal code, and telephone no.

PAYER’S TIN RECIPIENT’S TIN

RECIPIENT’S name

Street address (including apt. no.)

City or town, state or province, country, and ZIP or foreign postal code

Account number (see instructions)

1 Gross distribution

2a Taxable amount

2b Taxable amount

not determined

Total

distribution

3 Capital gain (included in

box 2a)

4 Federal income tax

withheld

Employee contributions/

Designated Roth

contributions or

insurance premiums

6 Net unrealized

appreciation in

employer’s securities

7 Distribution

code(s)

IRA/

SEP/

SIMPLE

8 Other

Your percentage of total

distribution

Total employee contributions

10 Amount allocable to IRR

within 5 years

1st year of desig.

Roth contrib.

FATCA ling

requirement

13 Date of

payment

14 State tax withheld

15 State/Payer’s state no. 16 State distribution

17 Local tax withheld

18 Name of locality 19 Local distribution

Form 1099-R

www.irs.gov/Form1099R

160000.00

32000.00

005-00-XXXX10-0000000

Mary Brown

12 Mill Avenue

Anytown, Nevada 89300

25000.00

10000.007A

Brown’s Real Estate

Proﬁt-Sharing Plan

2101 Chelsea Court

Anytown, Nevada 89300

26 Publication 575 (2023)

Page 27 of 52 Fileid: … tions/p575/2023/a/xml/cycle03/source 16:10 - 7-Mar-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Mary Brown

005-00-XXXX

√

160,000

10,000

170,000

17,000

2,917

29,170

28,070

0588

10,000

1,000

110

1,100