Some companies send pension payments to former employees. Pension plans are either defined-benefit plans that pay until the person dies, or defined-contribution plans. Defined-contribution plans are tax-deferred savings accounts to which the employee and the company both contributed while the person worked there. Pensions are taxed as regular income, and payments need to be entered correctly on the recipient's annual tax return.
Take the tax form that is sent by your pension plan sometime in January of each year, and write down the amount of annual pension it paid for the previous year.
Pick up a Form 1040 from an accountant or request one from the IRS via phone or online.
Write the entire amount of pension payments received in the previous year for the taxable year in line 16a on Form 1040. This will be the taxable amount listed as your taxable income on the Form 1099-R. If form does not contain the taxable income, use IRS Publication 939 to calculate this amount and list it in line 16b on Form 1040. If you have any additional questions, contact your accountant or the IRS.
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