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Subject:  Re: Pension Income tax consequence Date:  4/27/2002  6:54 PM
Author:  pills Number:  34382 of 102471

Only federal, state, and local income taxes are charged on pension income, not FICA.

If you made any after-tax contributions to the pension fund, the 1099R form reporting the income from the pension for the tax year will indicate that the taxable amount is either not determined or the taxable amount (in box 2a) will be different from (lower than) the gross distribution amount in box 1. If the taxable amount is not determined, there's a table and worksheet that guides the calculation for coming up with the taxable amount.

Be aware that you need to cover the tax due on pension income either by making estimated tax payments (to state and local as well as IRS) or by asking the payer of the pension to withhold taxes, in the same way as an employer does for salary income. If you're going to pay estimated tax, you need either to come within 10% or $1,000 of the total tax bill for the year (sometimes this is very difficult to forecast!) or pay as much as the total tax bill was for the preceding year (this is called "safe harbor").

Karl (an AARP Tax-Aide counselor)
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