J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

7.27 Simplified Method for Calculating Taxable Employee Annuity

If you have an investment in the plan and your annuity starting date was in 2012, you must use the simplified method explained below to figure the tax-free portion of your annuity payments from a qualified employer plan, qualified employee annuity, or 403(b) tax-sheltered annuity. The only exception is if you are age 75 or older on your annuity starting date and are entitled to guaranteed annuity payments for at least five years; in that case you must use the six-step method (7.23) for commercial annuities rather than the simplified method.

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Filing Instruction

Simplified Method Mandatory

If your annuity starting date was in 2011, you must use the simplified method (7.27) to figure the taxable part of your 2011 payments, unless on the annuity starting date you were age 75 or older and your payments are guaranteed for at least five years.

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A beneficiary receiving a survivor annuity may use the simplified method.

If your annuity started before 2012 and you have been using the simplified method to report your annuity payments, continue to do so, using the applicable number of expected monthly payments from either Table I or Table II, as discussed below.

Figuring taxable and tax-free payments under the simplified method.

Under the simplified method, a level tax-free portion is ...