Pension income

If you receive income from a pension, you must report it on your Federal Income Tax return. How your pension income is taxed depends on a variety of factors. If no part of your salary was withheld to contribute to your pension while you were working, then the entire amount of your pension is usually fully taxable. If you helped to pay part of your pension, then that portion may be considered tax-exempt. Also, the manner in which you choose to withdraw, receive, or transfer funds and report lump-sum distributions from company pensions, individual retirement accounts, annuities, and Keogh (KEY-oh) plans will have a direct bearing on your tax bill. Though the majority of the rules involving retirement income can be quite complex, it may be worth exploring to find beneficial tax breaks and to assist you in your retirement plans. For example, some workers who retire by year's end will be able to take advantage of an expiring tax law that reduces the amount of taxes they have to pay on withdrawals from their pensions. For more information on reporting pension income, consult a tax advisor or call the toll-free number for Federal Tax Information and Assistance at 1-800-829-1040.