Simplified Method Worksheet, Lines 5a and 5b

What is the Simplified Method Worksheet?

The Simplified Method Worksheet is not a separate IRS form. It is a one-page worksheet printed in the Instructions for Form 1040 (and 1040-SR), under lines 5a and 5b, Pensions and Annuities. It figures the taxable part of a partially taxable pension or annuity, the part that is not a tax-free recovery of your cost.

The worksheet is marked "Keep for Your Records": you do not send it to the IRS. Its results go on Form 1040 or 1040-SR: the total payments on line 5a and the taxable amount on line 5b. The blank above is the 2025 edition (page 29 of the 2025 instructions), used with 2025 returns.

The Instructions for Form 1040-NR do not have their own version: they send Form 1040-NR filers to this worksheet in the Instructions for Form 1040. A 1040-NR filer also includes the totals from Forms 1042-S (box 2) wherever a Form 1099-R (box 1) total is entered, and enters each amount on the same line of Form 1040-NR. Only pensions and annuities effectively connected with a U.S. trade or business go on Form 1040-NR, lines 5a and 5b; U.S.-source ones that aren't go on Schedule NEC.

Who must use the Simplified Method?

You must use the Simplified Method if either of the following applies:

1. Your annuity starting date was after July 1, 1986, and you used this method last year to figure the taxable part.
2. Your annuity starting date was after November 18, 1996, and both of the following apply: the payments are from a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity; and on your annuity starting date, either you were under age 75 or the number of years of guaranteed payments was fewer than 5 (Pub. 575 defines guaranteed payments).

In these cases the Simplified Method is required, not an optional shortcut. You determine the method when you first begin receiving your annuity and keep using it each year that you recover part of your cost.

You can't use the Simplified Method for a pension or annuity from a nonqualified plan; see the General Rule below. If your annuity started after July 1, 1986 and before November 19, 1996, you had to use the General Rule for a nonqualified plan, for a qualified plan if you were 75 or older with payments guaranteed for at least 5 years, and for any fixed-period annuity; otherwise you could choose either method, and you keep using the method you chose. If you received U.S. Civil Service retirement benefits and chose the alternative annuity option, do not use this worksheet: Pub. 721 explains how to figure the taxable part.

You don't need the worksheet if your payments are fully taxable: that is, you didn't contribute to the cost of your pension or annuity, or you got your entire cost back tax free before 2025 (for an annuity starting date after 1986; for an earlier starting date the exclusion can continue after your cost is recovered). Then enter the total payments from Form 1099-R, box 1, on line 5b and make no entry on line 5a (but see Insurance Premiums for Retired Public Safety Officers in the Form 1040 instructions).

What you need before you start

• Form 1099-R, box 1: the total pension or annuity payments before income tax or other deductions were withheld.
• Your cost in the plan at the annuity starting date: generally your net investment in the plan; it doesn't include pre-tax contributions. It may be shown in box 9b of Form 1099-R.
• Your annuity starting date: the later of the first day of the first period for which you received a payment or the date the plan's obligations became fixed.
• Age at the annuity starting date: a retiree uses their own age; the survivor of a retiree uses the retiree's age on their annuity starting date. If the starting date was after 1997 and the payments are for your life and that of your beneficiary, use your combined ages. The beneficiary of an employee who died is sent to Pub. 575.
• The number of months for which this year's payments were made.
• Last year's worksheet, if you completed one: you need its line 4 and, for an annuity starting date after 1986, its line 10.

Before you begin: if you are the beneficiary of a deceased employee or former employee who died before August 21, 1996, include any death benefit exclusion you are entitled to (up to $5,000) in the amount on line 2. If you had more than one partially taxable pension or annuity, figure the taxable part of each separately, enter the total of the taxable parts on line 5b and the total payments received in 2025 on line 5a.

How to fill out the Simplified Method Worksheet

1. Line 1: enter the total pension or annuity payments from Form 1099-R, box 1. Also enter this amount on Form 1040 or 1040-SR, line 5a.
2. Line 2: enter your cost in the plan at the annuity starting date. If you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 (even if the amount of your pension or annuity has changed).
3. Line 3: enter the number from Table 1 below. But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the number from Table 2.
4. Line 4: divide line 2 by the number on line 3.
5. Line 5: multiply line 4 by the number of months for which this year's payments were made. If your annuity starting date was before 1987, skip lines 6 and 7 and enter this amount on line 8.
6. Line 6: enter the amount, if any, recovered tax free in years after 1986 (Pub. 575: it should include all amounts that could have been recovered in prior years). If you completed this worksheet last year, enter the amount from line 10 of last year's worksheet.
7. Line 7: subtract line 6 from line 2.
8. Line 8: enter the smaller of line 5 or line 7.
9. Line 9, taxable amount: subtract line 8 from line 1 (not less than zero) and also enter it on Form 1040 or 1040-SR, line 5b. If your Form 1099-R shows a larger taxable amount, use the line 9 amount instead. If you are a retired public safety officer, first see Insurance Premiums for Retired Public Safety Officers in the Form 1040 instructions.
10. Line 10: if your annuity starting date was before 1987, stop here. Otherwise add lines 6 and 8: this is the amount you have recovered tax free through 2025, which you will need for next year's worksheet.
11. Line 11, balance of cost to be recovered: subtract line 10 from line 2. If it is zero, you won't have to complete this worksheet next year, and next year's payments will generally be fully taxable.

For an annuity starting date after 1986, line 7 caps line 8, so the total you exclude over the years can't be more than your cost. For a starting date before 1987, the worksheet skips lines 6 and 7.

Table 1 and Table 2 for line 3

Table 1, by your age at the annuity starting date (number to enter on line 3 if the starting date was before November 19, 1996 / after November 18, 1996):

• 55 or under: 300 / 360
• 56-60: 260 / 310
• 61-65: 240 / 260
• 66-70: 170 / 210
• 71 or older: 120 / 160

Table 2, by combined ages at the annuity starting date (only for a starting date after 1997 with payments for your life and that of your beneficiary):

• 110 or under: 410
• 111-120: 360
• 121-130: 310
• 131-140: 260
• 141 or older: 210

For an annuity that doesn't depend on anyone's life expectancy (a fixed-period annuity), see Pub. 575 for the number to use on line 3.

Example: a worksheet filled out for 2025

A hypothetical retiree, age 64 on the annuity starting date of January 1, 2025, receives a single-life annuity from a qualified employee plan: twelve payments of $1,000 in 2025 (Form 1099-R, box 1: $12,000). Cost in the plan: $26,000. This is the first year, so there is no earlier worksheet.

• Line 1: $12,000 (also on Form 1040, line 5a)
• Line 2: $26,000
• Line 3: 260 (Table 1, age 61-65, starting date after November 18, 1996)
• Line 4: $26,000 / 260 = $100
• Line 5: $100 x 12 months = $1,200
• Line 6: $0
• Line 7: $26,000 - $0 = $26,000
• Line 8: the smaller of $1,200 and $26,000 = $1,200
• Line 9: $12,000 - $1,200 = $10,800 taxable (on Form 1040, line 5b)
• Line 10: $0 + $1,200 = $1,200 recovered tax free through 2025
• Line 11: $26,000 - $1,200 = $24,800 still to be recovered

Next year this retiree skips line 3, enters $100 on line 4 (from this year's line 4) and $1,200 on line 6 (from this year's line 10).

If you can't use the Simplified Method: the General Rule

You must use the General Rule if your pension or annuity is paid from a nonqualified plan (such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan), or from a qualified plan if you were age 75 or older on your annuity starting date and your payments are guaranteed for at least 5 years. Pub. 575 covers the rules for annuity starting dates before November 19, 1996.

Under the General Rule, the tax-free part of each payment generally comes from an exclusion percentage: your investment in the contract (adjusted for any refund feature) divided by your expected return. For an annuity paid for life, the expected return is figured with the IRS actuarial tables; for a fixed-period annuity, it is based on the fixed number of payments, not on life expectancy. A variable annuity uses a different computation: the tax-free amount of each payment is your adjusted investment divided by the total number of periodic payments you expect to get. The methods and the tables are in Pub. 939, General Rule for Pensions and Annuities. You can also ask the IRS for a ruling that figures the taxable part for you, for a user fee (see Pub. 939 for the request and the fee).