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2020 Publication 575: Pension and Annuity Income

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2020 Publication 575: Pension and Annuity Income Userid: CPM Schema: tipx Leadpct: 100% Pt. size: 10 Draft Ok to Print AH XSL/XML Fileid: … tions/P575/2020/A/XML/Cycle06/source (Init. & Date) _______ Page 1 of 51 7:13 - 8-Mar-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Department of the Treasury Contents Internal Revenue Service What’s New .............................. 1 Publication 575 Reminders ............................... 2 Cat. No. 15142B Introduction .............................. 2 General Information ........................ 4 Variable Annuities ........................ 5 Pension Section 457 Deferred Compensation Plans ...... 5 Disability Pensions ....................... 6 and Annuity Insurance Premiums for Retired Public Safety Officers ............................. 6 Railroad Retirement Benefits ................ 7 Income Withholding Tax and Estimated Tax ........... 9 Cost (Investment in the Contract) ............ 10 For use in preparing Taxation of Periodic Payments .............. 11 2020 Returns 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 .............. 20 Lump-Sum Distributions .................. 20 Rollovers ............................... 28 Special Additional Taxes ................... 33 Tax on Early Distributions ................. 33 Tax on Excess Accumulation ............... 37 Survivors and Beneficiaries ................. 39 Coronavirus Relief ........................ 40 Coronavirus-Related Distributions ........... 40 Qualified Disaster Relief .................... 41 Qualified Disaster Distributions ............. 41 Taxation of Qualified Disaster Distributions ..... 43 Repayment of Qualified Disaster Distributions ... 43 Repayment of Qualified 2018, 2019, and 2020 Distributions for the Purchase or Construction of a Main Home ............ 44 Loans From Qualified Plans ................ 44 Information for Eligible Retirement Plans ...... 45 How To Get Tax Help ...................... 45 Worksheet A. Simplified Method ............. 49 Index .................................. 50 What’s New Qualified coronavirus distributions. Recent legislation Get forms and other information faster and easier at: contains special rules that provide for tax-favored with- • IRS.gov (English) • IRS.gov/Korean (한국어) drawals, repayments, and loans for certain individuals • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) • IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (Tiếng Việt) who were impacted by the virus SARS-CoV-2 or Mar 08, 2021 Page 2 of 51 Fileid: … tions/P575/2020/A/XML/Cycle06/source 7:13 - 8-Mar-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. coronavirus disease 2019 (referred to collectively in this Also, the exception for early distributions for public safety publication as coronavirus) in 2020. See Coronavirus-rela- employees is expanded to include distributions from de- ted distributions, later. fined contribution plans. See Qualified public safety em- Disaster tax relief. Recent legislation contains special ployees and Additional exceptions for qualified retirement rules that provide for tax-favored withdrawals, repay- plans for more information. ments, and loans from certain retirement plans for taxpay- Photographs of missing children. The IRS is a proud ers who suffered economic losses as a result of certain partner with the National Center for Missing & Exploited major disasters that occurred in 2020 (other than corona- Children® (NCMEC). Photographs of missing children se- virus-related distributions). See Qualified Disaster Relief lected by the Center may appear in this publication on pa- for information on these special rules, later. ges that would otherwise be blank. You can help bring Qualified birth or adoption distribution. Beginning in these children home by looking at the photographs and tax years after 2019, you can take a distribution from an calling 1-800-THE-LOST (1-800-843-5678) if you recog- eligible retirement plan, other than a defined benefit plan, nize a child. without it being subject to the 10% additional tax for early distributions if that distribution is for a qualified birth or adoption. For more information, see Qualified birth or adoption distributions under Exceptions, later. Introduction Required minimum distributions (RMDs). For tax This publication discusses the tax treatment of distribu- years beginning after 2019, the age for the required begin- tions you receive from pension and annuity plans and also ning date for mandatory distributions is changed for tax- shows you how to report the income on your federal in- payers reaching age 701/2 after December 31, 2019, to come tax return. How these distributions are taxed de- age 72. For more information on these benefits and when pends on whether they are periodic payments (amounts they are available, see Pub. 590-B, Distributions from Indi- received as an annuity) that are paid at regular intervals vidual Retirement Arrangements (IRAs). over several years or nonperiodic payments (amounts not received as an annuity). What is covered in this publication? This publication Reminders contains information that you need to understand the fol- lowing topics. Future developments. For the latest information about developments related to Pub. 575, such as legislation • How to figure the tax-free part of periodic payments enacted after it was published, go to IRS.gov/Pub575. under a pension or annuity plan, including using a Disaster tax relief. Special rules provide for tax-favored simple worksheet for payments under a qualified plan. withdrawals and repayments to certain retirement plans • How to figure the tax-free part of nonperiodic pay- (including IRAs) for taxpayers who suffered economic los- ments from qualified and nonqualified plans, and how ses as a result of certain major disasters that occurred in to use the optional methods to figure the tax on 2018 and 2019. Special rules also provide for tax-favored lump-sum distributions from pension, stock bonus, withdrawals and repayments from certain retirement plans and profit-sharing plans. (including IRAs) for taxpayers who suffered economic los- ses as a result of Hurricane Harvey or Tropical Storm Har- • How to roll over certain distributions from a retirement vey, Hurricane Irma, Hurricane Maria, or the 2017 Califor- plan into another retirement plan or IRA. nia wildfires. • How to report disability payments, and how beneficia- Disaster tax relief is also available for taxpayers who ries and survivors of employees and retirees must re- suffered economic losses as a result of disasters declared port benefits paid to them. by the President under section 401 of the Robert T. Staf- • How to report railroad retirement benefits. ford Disaster Relief and Emergency Assistance Act during calendar 2016. See Qualified Disaster Relief for informa- • When additional taxes on certain distributions may ap- tion on these special rules. ply (including the tax on early distributions and the tax Net investment income tax. For purposes of the net in- on excess accumulation). vestment income tax (NIIT), net investment income For additional information on how to report pen- doesn't include distributions from a qualified retirement TIP sion or annuity payments on your federal income plan (for example, 401(a), 403(a), 403(b), 408, 408A, or tax return, be sure to review the instructions on 457(b) plans). However, these distributions are taken into the back of Copies B, C, and 2 of the Form 1099-R, Distri- account when determining the modified adjusted gross in- butions From Pensions, Annuities, Retirement or come threshold. Distributions from a nonqualified retire- Profit-Sharing Plans, IRAs, Insurance Contracts, etc. that ment plan are included in net investment income. See you received and the Instructions for Forms 1040 and Form 8960, Net Investment Income Tax—Individuals, Es- 1040-SR, lines 5a and 5b, and the Instructions for Form tates, and Trusts, and its instructions for more information. 1040-NR, lines 5a and 5b. Qualified public safety employees and early distribu- tions. For tax years beginning after 2015, the definition of qualified public safety employees has been expanded. Page 2 Publication 575 (2020) Page 3 of 51 Fileid: … tions/P575/2020/A/XML/Cycle06/source 7:13 - 8-Mar-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. A “corrected” Form 1099-R replaces the corre- Revenue Service, Tax Forms and Publications, 1111 Con- ! sponding original Form 1099-R if the original stitution Ave. NW, IR-6526, Washington, DC 20224. CAUTION Form 1099-R contained an error. Make sure you Although we can’t respond individually to each com- use the amounts shown on the corrected Form 1099-R ment received, we do appreciate your feedback and will when reporting information on your tax return. consider your comments and suggestions as we revise our tax forms, instructions, and publications. Do not send What isn't covered in this publication? The following tax questions, tax returns, or payments to the above ad- topics aren't discussed in this publication. dress. The General Rule. This is the method generally used Getting answers to your tax questions. If you have to determine the tax treatment of pension
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