Line 16 on 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 various available tax deductions can be challenge enough at tax time. After you have that down, you're faced with figuring out where to enter it all in on your tax return. Income derived from retirement plans goes on the first page.
Line 16 of Form 1040
That's the easy part.
Line 16 is broken down into two categories. The space next to 16a reports the gross amount of distributions you received from pensions and annuities. Line 16b reports the taxable portion of these distributions. For example, you may 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 therefore go on line 16a, and the $10,000 taxable amount goes on line 16b. Line 16b is the amount that contributes to your overall taxable income.
Retirement Funds That 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
You do not have to enter distributions from the following types of accounts because they go elsewhere:
- Individual retirement accounts (IRAs) are reported on line 15 instead.
- Disability pensions received before you've reached the minimum age for retirement benefits as set by your employer are reported on line 7 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 7 as wages as well.
How to Figure out 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 for your pension or annuity
- Your employer didn't withhold contributions from your salary, or
- You received all of your contributions (your investment in the contract) tax-free in prior years"
The IRS also 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."
Details about the General Rule are found in Publication 939. Details about the Simplified Method are found in Publication 575. The Simplified Method Worksheet is found on page 28 of the 2016 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 a fee which can change periodically. Refer to page 77 of Publication 939 to request an IRS ruling, which is the process for having the IRS determine the taxable portion.
Call the IRS to determine the current fee. If you decide to pay it and elect to itemize your deductions, the fee is tax deductible as a miscellaneous itemized deduction subject to the 2 percent of adjusted gross income limitation.
Recommended Procedure for Entering Pension Income on Form 1040
- 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 Individual Retirement account. That information goes on line 15 so you can set these aside for now until you're ready to enter that income.
- The Forms 1099-R without a check in the IRA box are reporting distributions from pensions and annuities. This is the information that goes on line 16.
- Use the Simplified Method Worksheet found in the instructions for Form 1040 to calculate the nontaxable (line 16a) and taxable (line 16b) amounts.
- Make a table for your own records to show your math. The table should look like this:
Work paper for Form 1099-R where the IRA box is not checked
Gross distribution from box 1
Taxable amount from box 2a
Taxable amount from General Rule or Simplified Method worksheet
Federal income tax withheld from box 4
State income tax withheld from box 15
Report on Form 1040 line 16a
Report on Form 1040 line 16b
Report on Form 1040 line 64
Report on Schedule A line 5a and on your state tax return