Simplified method for pensions

First off, I believe the "annuity starting date" is defined as the period when you get your first payment. So, in this case, 2004 is irrelevant if no payments were received. The simplified method uses the exact number of payments made in the year. I use ATX software and it accepts a number other than 12 in the payments box. It does round a partial month up. LK copied to expedite.

Thanks for the response, A G, I appreciate the help.

In the meantime, I've been doing some research on my own and think I've found my answer. In case anyone else has a similar situation, I thought I would post what I learned. In the simplified method, you cannot have more than 12 payments because the method only applies to payments FOR the tax year. Only payments received in the form of an annuity can be counted. And, to be an annuity, the payments must be in EQUAL, periodic amounts. If the annuitant receives a sum to cover retroactively due payments, this is to be treated as a lump-sum received before the annuity starting date. For this purpose, the starting date is the date the first periodic payment is received, not the date the person became eligible to receive payments. Thus, the retroactive payment must be treated as a lump-sum payment and the tax-free portion determined under the rules for such payments. This reduces the contract balance for use in the simplified method for the monthly payments. See 14 and 15 of Pub 575 for more detail.

Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

Well, once the factor is determined for monthly payments, it is applied to the payments received during the tax year, be they monthly, biweekly or semi monthly. Say the factor is 240, and annuitant is paid semi monthly. We would then use a factor of 480.

Disagree. My wife just retired from US civil service 12/31. She received interim estimated payments for Jan and Feb, the way all civil service annuitants receive them, then first regular payment came for March. In any event, it all evens out in the annual calculation using her factor. Now if for some reason her paperwork had been delayed, and she got one lump sum in March for three months, that would have been for those three months, and an excludable amount duly calculated.

But I think we agree on this point anyway.

ChEAr$, Harlan

If the annuity start date was supposed to be 2004 and for some reason beyond the control of the annuitant, the payments were not made until 2005, why wouldn't you consider this a corrective distribution and therefore not a nonperiodic payment?

Try reading Pub 575, pages 14 and 15. The instructions there are quite clear - a lump-sum to cover retroactive payments cannot be part of the simplified method. However, in the case you cited, the pensioner only received 12 (or

24) payments during the year. In the cases discussed in Pub 575, the pensioner is receiving more than 12 montsh of payments. In such cases, the retroactive portion is considered a lump-sum received before the annuity starting date. Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

Because it is not periodic!

The simplified method uses the number of months FOR which payments were received during the year. According to Pub

575, the "catch-up" payments are not periodic -- which they are not, they are a lump-sum. To qualify for determination using the simplified method, payments must be received in equal, periodic payments. The IRS rules specifically state that any such "catch-up" payments are to be considered as a lump-sum received before the annuity starting date. For this purpose there are really two annuity starting dates. First, is the starting date being used by the payor. This is the date that the persioner is first eligible to receive payments and from which date the amounts due him/her are calculated. Since this may take some time to determine, the actual monthly payments will start at some later date. For purposes of the simplifed method, this latter date is considered the annuity starting date. In the case of the client I was discussing in my original post, the annuity is being paid by a UN organization headquarted in Canada. He left his position in August 2004 and he was entitled to payments from that time. But, since the processing involved the organizations headquarters in Canada and UN headquarters in NY, he didn't actually receive any money until February 2005. On February 1, he received a single check paying all benefits due from 8/15/04 to 1/31/05. Then, on March 1, he received the first of the regular, monthly payments. Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

In the case of U S civil service at least, the annuity starting date is always the day right after retirement. It's the service itself that's just slow in calculations. However let it be said that these days, unlike those of old, the USPO (U S Personnel office) actually calculates the exclusion and gives the two pertinant figures, gross and taxable on the 1099R form, a form whose layout is like no other. They should at least use IRS forms! (grin) ChEAr$, Harlan Lunsford, EA n LA

In the case I was referring to in my original post, my client's annuity starting date, as far as the employer was concerned, was in August 2004, which was his last day of employment.. His employer was an agency of the UN, which is an organization with as much bureaucratic rules and regulations as any government -- including the US. It took them until January 2005 to figure out how much his monthly pension would be. In part, this was because there was a lump-sum distribution of his contributions into the plan. Thus, the true starting date was something like August 15,

2004. However, for the purposes of the simplified method, the annuity starting date is the date when the first regular periodic payment is received. My client received everything he was due from August to January in a check at the end of January. His first MONTHLY payment was received in February; ergo, his annuity starting date for calculating the non-taxable portion was February 1. Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

HEY! You're right. And while we're at it, what about the U S Postal Service? and Department of State? ChEAr$, Harlan

Since the simplified method applies to monthly payments separately, he is entitled to the 16.5 x the exclusion factor. Look for the "easy button" in your software, IOW, override! Override either the "12" or the amount incorrectly calculated. ChEAr$, Harlan Lunsford, EA n LA