Question

A 59 year-old calendar year individual taxpayer purchased an annuity from an insurance company for $100,000 in 2019. The terms of the annuity were that the company would pay him $5,000 a year to T for the rest of T’s life. How much income will he include in his personal income tax return as a result of receiving the $5,000 payment

in 2020?   _____________

In 2050? ______________

Answer 1

Dear Sir,

In above case we are assuming that T will start to receive the annuirty income from Year 2020 for $5000 per Year.

So refferring to Table V in IRS publication 939 (see page 26) we find the so-called "multiple" for age 65 to be 20. But as in our case T's age is 59, so we will consider 26 Years

Yearly Payment $5000 x Nos of Years 26 Years = $1,30,000

However the actual amount to receive will depend on his health and longevity. If we divide the $100000 (his investment) by $1,30,000, we will get 77% . That's how much of each $5000 check is his initial after-tax investment being returned to him and is not taxable OR excludable from his income tax.

Year 2020	Taxable 23%	Not Taxable 77%
$5,000	$1,150	$3,850

In Year 2020, T will show $1150 as his taxable income in Income tax return.

In Year 2050, T,s total Income will be taxable, so in Year 2050, he need to show his total income $5000 in income tax return.

Thanks & Regards,

Rajesh