What Is IRS Publication 575?

IRS Publication 575 is a document published by the Internal Revenue Service (IRS) that provides information on how to treat distributions from pensions and annuities, and how to report income from these distributions on a tax return.

It also outlines how to roll distributions into another retirement plan.

Key Takeaways

  • IRS Publication 575 explains how to treat pensions and annuities according to the IRS.
  • This publication covers distributions from pensions and annuities and how to report them on a tax return.
  • IRS Publication 575 also covers how to address tax-free parts of payments.

Understanding IRS Publication 575

IRS Publication 575 is updated for every tax year. It covers the tax treatment of distributions from pension and annuity plans and also shows how to report the income on a federal income tax return.

How these distributions are taxed depends on whether they are periodic payments, or amounts that are paid at regular intervals over several years, or nonperiodic payments, which are amounts not received as an annuity. It covers the following topics:

  • How to figure the tax-free part of periodic payments under a pension or annuity plan, including using a worksheet for payments under a qualified plan.
  • How to figure the tax-free part of nonperiodic payments 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 beneficiaries and survivors of employees and retirees must report benefits paid to them.
  • How to report railroad retirement benefits.
  • When additional taxes on certain distributions may apply, including the tax on early distributions and the tax on excess accumulation.

Publication 575 does not cover the tax treatment of funds from nonqualified plans such as commercial annuities. Information on this treatment is available in IRS Publication 939, General Rule for Pensions and Annuities.

In addition, this publication does not cover benefits from retired government employees or their beneficiaries, which are covered in IRS Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits.

Terms Referenced in IRS Publication 575

A pension and an annuity are both retirement income supplements paid out in installments. There are differences, though, particularly in the eyes of the IRS.

A pension typically is a series of payments made by an employer to a retired employee, usually for life. The amount of the payment is based on factors including years of service and prior compensation.

An annuity is a series of payments made as a contractual obligation at regular intervals over a period of more than one year. It can be fixed so that the beneficiary receives a definite amount or variable if the payment is tied to an investment return. An employee may fund the contract alone or with the help of an employer.

A qualified employee plan is a company stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries, and that meets Internal Revenue Code requirements. That is, it qualifies for special tax benefits, such as tax deferral for employer contributions and capital gains treatment for the income, if participants qualify.