YOUR TAXES : PART FIVE: PAYING YOUR TAXES : Retirees should study tax status of pensions

Retirees should carefully review the tax status of income on their pension or annuity payments to decide whether to permit tax withholding on these payments, according to the Internal Revenue Service.

Federal income tax is now generally withheld from pension and annuity payments. However, this withholding is not compulsory; any person can apply for exemption. The payer of the pension or annuity payments will tell the retiree how to file for the exemption.

To determine whether to have tax withheld, taxpayers should review the tax rules that cover pensions and annuities. A pension to which an employee contributed nothing during his or her employment, for example, is fully taxable in much the same way that salaries and wages are during working years. The full amount must be reported as income on the line designated for fully taxable pensions and annuities on Form 1040. The 1040A and 1040EZ forms cannot be used to report pension income, the IRS says.

On the other hand, a pension to which both the employer and employee contributed, while not fully taxable, is partially taxable and is subject to special tax reporting.

For more information about reporting pensions and annuities, get the free IRS Publication 575, “Pension and Annuity Income.”

U.S. government retirees should get free Publication 567, “U.S. Civil Service Retirement and Disability.”