Is a pension taxable?

The rule in plain terms

Publication 575 starts from one idea: a pension is taxed to the extent it was not already taxed. Money your employer put in, and money withheld from your pay before income tax, has never been taxed, so the payments that come out of it are income when you receive them. Money you paid in with after-tax dollars has already been taxed once, and the publication lets you get that amount back without tax a second time. The publication calls that amount your cost, or your investment in the contract.

That is why there is no single answer that fits every retiree. A teacher whose contributions all came out of pre-tax salary, and whose employer paid the rest, has no cost, so every dollar of the pension is taxable. A worker who made after-tax contributions has a cost, and a slice of each payment is tax free until that cost is used up. The sections below follow the publication’s own order: fully taxable payments, partly taxable payments, and then the cases that sit outside both.

Fully taxable payments

The publication says your payments are fully taxable if you have no cost in the contract. Three situations qualify. You paid nothing, or are not considered to have paid anything, for the pension, and amounts withheld from your pay on a tax-deferred basis do not count as something you paid. Your employer did not withhold contributions from your salary. Or you have already received all of your contributions back tax free in earlier years.

When all of it is taxable, the reporting is specific: enter the total you received on Form 1040, 1040-SR or 1040-NR line 5b, and make no entry on line 5a. Distributions based on accumulated deductible voluntary employee contributions are also generally fully taxable in the year distributed, and if they are part of a lump sum they do not qualify for the 10-year tax option or capital gain treatment.

Partly taxable payments

If you do have a cost, the publication lets you exclude part of each annuity payment as a recovery of that cost. The tax-free part is figured when the annuity starts and stays the same each year, even if the size of the payment changes. The rest of each payment is taxable. Two methods exist. The Simplified Method is generally required when the annuity is paid under a qualified plan; the General Rule is required for a nonqualified plan. You pick the method when you first receive the annuity and keep it for as long as you are recovering cost.

The exclusion has a ceiling. If the annuity starting date is after 1986, the total you can exclude over the years cannot exceed your total cost. If you die before recovering all of it, the unrecovered cost is allowed as an itemized deduction on your final return. For annuities that started before 1987 the exclusion can continue for as long as you receive payments. Our simplified method page walks through the worksheet with real numbers.

What is not taxed, or is taxed differently

A qualified distribution from a designated Roth account is not included in gross income, covering both your contributions and the earnings. In general that means it comes after a 5-tax-year period of participation and on or after age 59½, to a beneficiary or estate on or after death, or because of disability. A distribution that is not qualified falls back on the ordinary rules, with the Roth account treated as a separate contract.

Disability pensions have their own timing. A disability pension paid under an employer-funded plan is generally income and is reported as wages on line 1h until you reach minimum retirement age; after that the payments are taxable as a pension. Certain military and government disability pensions for service-connected injury or sickness may be excludable, and an eligible retired public safety officer can exclude up to $3,000 of insurance premiums paid from a plan distribution. Those cases have their own rules, so check them before assuming the general answer.

Worked example

A retiree receives $24,000 in pension payments during 2025 from a qualified plan. Using the Simplified Method she figured at retirement, $3,000 of the year’s payments is a tax-free return of her after-tax contributions. Line 5a is $24,000, the total received, and line 5b is $21,000. The $3,000 is the same type of number the calculator above asks for as the tax-free part. If she had no cost at all, line 5b would be $24,000 and line 5a would be left blank, as the publication directs for fully taxable payments. If your Form 1099-R shows a larger taxable amount than your worksheet produces, the publication says to use the worksheet figure.

Survivors and the paperwork

A survivor or beneficiary generally reports pension income the same way the participant would have. Under a joint and survivor annuity the survivor payments are included in income in the same way the retiree included them, and under the Simplified Method the tax-free part stays fixed at the amount the retiree figured at the annuity starting date. Form 1099-R reports what the payer paid out; box 2a is its estimate of the taxable amount, and it is not always the final answer when you have a cost.

This page explains a federal publication. State income tax treatment of pensions varies and is not covered here, nor is the 10% additional tax on early distributions, which our early-distribution exceptions page covers.

Sources

• IRS Publication 575, Pension and Annuity Income (2025): Taxation of Periodic Payments (Fully Taxable Payments, Partly Taxable Payments); Cost (Investment in the Contract); Designated Roth accounts; Survivors and Beneficiaries. Read November 2, 2026.

Edition read: Publication 575 (2025), for use in preparing 2025 returns. Dollar limits and dates in this publication are for 2025; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it.