INDIVIDUAL FEDERAL INCOME TAXES
WHAT IS INCLUDED IN GROSS INCOME
RETIREMENT INCOME
Pension and IRA Distributions
Payments from pensions, annuities, IRA’s, Roth IRA’s, insurance contracts,
profit-sharing, and other employer plans are reported to the taxpayer and the IRS
on Form 1099-R. Box 1 of the Form 1099-R will show the total amount received
that must be reported on your income tax return. Box 2 will show the taxable
portion of the distribution. The payer of the distribution will determine the
amount, if any, of the non taxable portion. This will be determined by the
amount of your contribution to the plan. If there was federal income tax withheld
on the distribution, that amount will show in Box 4.
If you are entitled to receive an eligible rollover distribution from a
qualified plan, you may choose a direct rollover or if you have actually received
the distribution you may make a personal rollover to an IRA account. If you do
the direct rollover, your old plan administrator will send the money directly to the
new account and no tax withholding will be necessary. If the distribution is made
to the taxpayer, 20% federal tax will be withheld. For you to rollover 100% of the
distribution, you will have to use other funds to replace the 20% withheld tax.
This must be accomplished within 60 days of the original distribution. You will not
receive benefit for the tax withheld until you file your tax return. If you are going
to rollover the distribution, it is always best to do a direct rollover.
Social Security Benefits
Social Security benefits are reported on Form SSA-1099 from the Social
Security Administration. Your Social Security benefit must be reported on your
income tax return.
The taxable portion depends on your provisional income and your filing
status. Part of your SS benefit will be taxable if your provisional income exceeds
$25,000 for a single return and $32,000 for a joint return. Provisional income is
determined by taking the total income shown on the return and adding tax-free
interest and 50% of your SS benefit. The taxable portion can be as high as 85%
depending on your total income. This is an example of how tax-free interest can
increase your taxable income.