Do I have to pay income tax on my pension?

Answer 1

The amount you withdraw each year from your pension is taxable income. Whether you pay tax on it depends on your total taxable income, deductions, exemptions, filing status, etc. It is just like earning money from work except you don't have to pay FICA tax on it. The only exception is when you contributed post-tax money to your pension. Most people don't, but if you did, the form sent to you at the end of the year (1099-R) will list your total payout. It will also list how much of that payout is taxable. Any amounts paid to you that were originally paid in by you as post-tax contributions will not be taxable.

So, basically, count on your total pension being taxable and be happy if part of it isn't. Even if part isn't taxable, it won't be a large percentage. I've done taxes for years and I never saw a taxable withdrawal less than 85%.

Additional:

In response to Steve F's answer below, I have high regard for his responses. Being a fellow tax answerer on Yahoo, his answers are usually pretty trustworthy. I am not sure if he is a CPA or accountant, or just a smart person, but aparently he hasn't read IRS publication 575 "Pension and Annuity Income" recently. It IS possible to have post-tax contributions to a pension plan. Not all pension plans are fully funded by the employer. If you do have one that was fully funded by the employer, then yes, the entire amount is taxable income. However, some are partially funded by the employee with after-tax money. In those situations, part of the payment is taxable and part is not taxable. Hopefully, the company running the pension will enter the taxable amount on the 1099-R box 2a. If nothing is in 2a and 2b "Taxable amount not dermined" box is checked, then the employee will have to figure out how much of their monthly payment is tax free. Any pension starting after November 18th, 1996 will use the "Simplified Method" to figure out the tax-free part. All of this information is in Publication 575 (link attached). I am teaching a beginners tax class now and we just covered the chapter on pensions and annuities. I highly recommend taking an H&R Block beginners tax class if you want to learn about income taxes. It doesn't cover everything, but it covers a ton. There are 66 hours of classroom time and it costs only $150.

Answer 2

A gave the Canadian a 'thumbs down' on this question because it is listed under "Taxes->United States". It should be assumed to apply to US taxes. The next 2 answers don't appear to know what a pension is.

A pension refers to regular payments made to a retiree by a former employer and is not based on a fixed sum available at retirement or employee contributions. This income is treated the same as wage income for tax purposes.

Answer 3

My answer only applies if you live in the US. It depends where you put your money. If you are contributing to your retirement savings under a pretax plan like 401k or IRA, then you will have to pay tax when you get a distribution. If you are putting it in after tax plan like Roth IRA, then it's tax free when you take it out. If your employer matches your pretax contribution, that matching will also be taxable. Income from Social Security is also taxable.

Answer 4

particular, in maximum circumstances the pension is taxable income. If the payer is withholding tax on the charge, you could document nonresident tax return. on the return, you will get very own exemption of $3650 in 2009. additionally you ought to flow by tax treaty between U.ok and U.S.

Answer 5

I do not know what country you live in but in Canada I pay tax on my pension.

Answer 6

What % (tax) should I have taken out of my pension. Right know I claim married 3 dependents, they are taking out (approx.) 3.5% Fed and 1,7% State. I feel this is too low.

Answer 7

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