If you have an annuity, the payments you get are considered income by the IRS. An annuity is any financial setup where you receive regular payments for the lifetime of the annuity, which is often the lifetime of the beneficiary. There’s a lifetime annuity where you just give an insurance company a huge sum of money, and they agree to dole out regular payments for the rest of your life. It’s safe but if you think if the missed opportunity then it’s not for those who think they can get better returns a different way.
Anyhoo…once you’re receiving those regular annuity payments, it’s rather nice because it’s like getting a regular paycheck. Guess what else is like getting a regular paycheck: you have to pay income tax on it. That’s what IRS Publication 575 is about: how to correctly report and pay income tax on annuity income, plus pension income falls within the same category so is treated in this Publication as well.
There are also variable rate annuities, whose regular payments will depend on results of investments made by the administrator of the annuity plan. Some annuities go for lifetime and others go for a fixed period.
Also covered in IRS Publication 575 is disability payments you get after retiring on disability. If your disability payments are through your former employer, then you have to pay income tax on those payments. These payments are called “Disability Pensions”.
Retired public safety officers who buy insurance can exclude from income the amount of their insurance premiums if those premiums are paid for out of the pension they receive. There is a limit on this: up to $3000. Also, if you take this option of excluding from income your health or accident insurance or insurance for long term care, you cannot take a medical deduction for the medical costs covered by this money.