Line 4 on the New Form 1040: Pensions and Annuities
How to Report Pension and Annuity Income on Your Tax Return
Understanding all the ins and outs of your earned and unearned income and the variety of available tax deductions can be challenging enough at tax time. Then, after you have that down, you're faced with figuring out where to enter all of it on your tax return.
Income from retirement plans such as pensions and annuities goes on the first page of your return.
Line 4 of Form 1040
This is a change from 2017 and previous years because the IRS totally redesigned this tax return for tax year 2018 and going forward.
Line 4 is broken down into two categories, a and b. Report the gross amount of distributions you received from pensions and annuities in the space at 4a, and report the taxable portion of these distributions on line 4b.
For example, you might have received a distribution of $12,000 from your 401(k) plan, but only $10,000 of that amount was taxable. The $12,000 gross amount would go on line 4a, and the $10,000 taxable amount goes on line 4b. Line 4b is the amount that increases your overall taxable income.
Which Retirement Funds Are Reported on Line 16?
Distributions from the following accounts are entered on this line of your tax return:
- 401(k) plans
- 403(b) plans
- Civil Service Retirement System (CSRS)
- Federal Employees' Retirement System (FERS)
- Foreign pension plans
- Governmental 457(b) plans
- Thrift Savings Plan
What Does Not Get Reported on Line 16?
Not every type of retirement income belongs on line 16. You don't have to enter distributions from the following types of accounts because they go elsewhere on your tax form:
- Disability pensions received before you've reached the minimum age for retirement benefits as set by your employer are reported on line 1 of the new 2018 Form 1040 as wages instead.
- Corrective distributions of excess salary deferrals or excess contributions to 401(k), 403(b), or 457(b) retirement plans are reported on line 1 as wages as well.
Figuring the Taxable Portion of Pension and Annuity Income
The IRS says your payments are fully taxable if:
- You didn't contribute anything or aren't considered to have contributed anything to your pension or annuity.
- Your employer didn't withhold any contributions from your salary.
- You received all your contributions to the contract tax-free in prior years.
The IRS says:
"You may be able to report a lower taxable amount by using the General Rule or the Simplified Method, or if the exclusion for retirement public safety officers applies."
The General Rule vs. the Simplified Method
Details about the General Rule can be found in Publication 939. Details about the Simplified Method are found in Publication 575. The Simplified Method Worksheet is on page 31 of the 2018 tax-year PDF version of the Instructions for Form 1040.
Information about the tax treatment of distributions from CSRS, FERS, and the Thrift Savings Plan can be found in Publication 721.
You also have the option of asking the IRS to calculate the taxable part of your pension distribution for you.
The IRS charges a fee for this and it can change periodically. Refer to Publication 939 to request an IRS ruling, which is the process for having the IRS determine the taxable portion, then call the IRS to determine the current fee.
Recommended Procedure for Entering Pension Income on Form 1040
Make sure you collect all the necessary information and report it as required:
- Gather all your Forms 1099-R from each financial institution for the year.
- Separate your 1099-R statements into two piles: those where the IRA box is checked next to Box 7, and those where the IRA box is not checked.
- The Forms 1099-R with a check in the IRA box are reporting distributions from an IRA. This information goes on line 4 of the 1040.
- The Forms 1099-R without a check in the IRA box are reporting distributions from pensions and annuities. This information also goes on line 4.
- Use the Simplified Method Worksheet found in the instructions for Form 1040 to calculate the nontaxable (line 4a) and taxable (line 4b) amounts.
Tax laws change periodically and the above information may not reflect the most recent changes. Please consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and it is not a substitute for tax advice.