Transcript VITA/TCE - VITA: Volunteer Income Tax Assistance 2009

Lesson 11
Pensions and Other
Retirement Income
Objectives
• Determine the taxable portion of different
types of retirement income
• Determine how to report different types of
retirement income on the tax return
• Explain when a minimum distribution is
required
• Determine when an adjustment to
withholding should be made
Intake/Interview Process
Form 13614 – Intake and Interview Sheet Income Section
Pensions and Annuities
• Pension
• Annuity
• Qualified Employee Plan
• 401(k) Plan
Taxable Portion of
Retirement Income
• Fully Taxable
• No basis (employee contribution) in the plan
• All distributions are included in taxable
income
• Partially Taxable
• Basis or cost in the plan
• Only the taxable portion of the distribution is
included in taxable income
Determining Taxable
Retirement Income
• The General Rule
• The Simplified Method
−Based on total basis or cost in the plan and
total anticipated monthly payments
−Use Simplified Method Worksheet
−Tax-free portion of each payment does not
change, once computed
Reporting the Income
IRA
Pension
Annuity
Social Security
Railroad-Tier 1
Railroad-Tier 2
1040
Line 15
Line 16
Line 16
Line 20
Line 20
Line 16
1040A
11
12
12
14
14
12
Disability Pension
• Treat as wages until the taxpayer
reaches minimum retirement age
(report on line 7, Form 1040)
• Treat as pension income once
minimum retirement age reached
(report on line 16, Form 1040)
Minimum Distributions
• Distributions must begin by the
required beginning date
• Must receive entire interest in the plan
or minimum required distribution
• Excise tax (50%) imposed on amount
not distributed as required
Railroad Retirement
Benefits paid under two categories:
• Social Security Equivalent Benefits (SSEB)
− Reported on Form RRB-1099
− Treat as social security benefits
•
Non-Social Security Equivalent Benefits
(NSSEB)
− Reported on Form RRB-1099-R
− Treat as pension benefits
Social Security Benefits and
Railroad Retirement SSEB
• A portion of Social Security Benefits or
Railroad Retirement SSEB may be taxable
−Generally up to 50%
−Can be up to 85%, if:
• income +½ of benefits exceed base amount or
• MFS & lived with your spouse
• Use the Social Security Benefits Worksheet
to calculate the taxable benefits
Lump-Sum Social Security
Benefit Payments
•
•
•
Payment can be for current and prior years
Do not confuse with nontaxable lump-sum
death benefits
Two options to figure taxable portion:
− Report all in year received – complete Social
Security Benefits Worksheet
− Treat as received in earlier year(s) – refer to
paid preparer
IRA Distributions
• Traditional IRA distributions may be
− fully taxable or
− partially taxable
• Roth IRA distributions are not taxed (if
all requirements are met)
Traditional IRA Distributions
•
•
•
•
•
Taxable as ordinary income in year received
Reported to taxpayer on Form 1099-R
Fully taxable – only deductible contributions
Partially taxable – nondeductible contributions
Required minimum distribution by April 1 of year
following year taxpayer reaches age 70½
Roth IRA Distributions
• Qualified distributions are not taxable
• Distribution made after 5-taxable-year period
after Roth was established and
−Taxpayer is age 59 ½, or
−Taxpayer is disabled, or
− To a beneficiary/estate after taxpayer death, or
−To buy, build, or rebuild a 1st home
Pension Withholding &
Estimated Tax Payments
• Use W-4P to adjust or change withholding
on a pension or annuity
• Estimated tax payments may be required if:
−Taxpayer has too little tax withheld
−Taxpayer owes more than $1,000 in tax
Quality Review (QR)
Form 8158 – Quality Review Checklist Income Section
Lesson Summary
• Pension benefits are fully or partially
taxable
• Use Simplified Method Worksheet to
determine taxable portion of pension
• Social security benefits may be partially
taxable
• Use Social Security Benefits Worksheet
to determine taxable portion
Lesson Summary – cont’d
• Traditional IRA distributions may be fully
taxable or partially taxable
• Partially taxable IRA distributions are outside
the scope of VITA/TCE
• Qualifying Roth IRA distributions are not
taxable
• Adjust pension withholding with Form W-4P