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Taxable amount of pension

Suzi

How Do I know the taxable amount to enter on line 5b form 1040?

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JMSSGV

You need to review the US-Canada tax treaty to determine how your pension is taxed. (I'm assuming this is a private pension, not a government one, like US Social Security.)

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JMSSGV

this only applies if you made contributions toward your pension. Start with the number in Box 2 of Form 1099-R. If it's blank, or if it seems wrong, and the "taxable amount not determined" box is checked, you need to do a calculation to determine how much you can recover tax-free every year.

This IRS page https://www.irs.gov/taxtopics/tc411 has information about the "simplified method" and links to the worksheet to do the calculation. You'll need the annuity starting date, your age at the start of the annuity (both spouses if a joint & survivor annuity), and the amount of your contributions. Basically what it boils down to is dividing your contributions over your life expectancy to get a dollar amount you can exclude every year until it's all recovered.

GeorgeM

Hello Suzi:

To follow-up on the post from JMSSGV, in order to determine the taxable amount of your pension, you need to first determine what percentage of your distribution is a “return of principal.” Return of principal is sometimes referred to as your cost basis, or just basis, but essentially what it means is the amount of money that you invested in your retirement/pension that was made with after-tax money.

Because your retirement distribution may include after-tax money, that money is not taxable and thus, that amount of after tax money is subtracted from your total distribution and the result is the amount to include on line 5b of Form 1040.

Poster JMSSGV is referencing IRS Publication 721, which is the tax guide for those who have retired from a civil service position with the U.S. Government, such as postal workers, civil engineers, revenue agents, etc. That guide explains how U.S. Civil Servants can compute the non-taxable portion of their retirement benefits.

It could be that your entire distribution is taxable. However, check to see if you have an amount in Box 5 on your Form 1099-R. If you do, the amount in Box 5 represents your investment—your after-tax money—in your retirement plan and some part of that investment was likely included in the distribution you received during 2025.

Consider starting a chat with one of our Support Staff and let them know which entity/company paid your retirement benefits. While we cannot calculate the taxable versus non-taxable portion of your retirement benefits, we might be able to guide you on where you can find the answer so you can determine the correct amount to enter on line 5b of Form 1040.

Suzi

Thank you for that!

My pension is Canadian, so it does add another layer to my question.

JMSSGV

You need to review the US-Canada tax treaty to determine how your pension is taxed. (I'm assuming this is a private pension, not a government one, like US Social Security.)

JMSSGV

"Poster JMSSGV is referencing IRS Publication 721, which is the tax guide for those who have retired from a civil service position with the U.S. Government, such as postal workers, civil engineers, revenue agents, etc. That guide explains how U.S. Civil Servants can compute the non-taxable portion of their retirement benefits."

Please note that I did NOT reference Pub 721. It is one of the links on the Pensions-Tax Topic page I linked to. The information on that page is not limited to government pensions.