Pension Tax Law
The Internal Revenue Service (IRS) enforces a federal tax on retirement benefits in the form of pensions. If you have a pension, you may be taxed for the full amount or only part of the payments depending on the nature of the benefits.
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Fully Taxable Pensions
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If your employer did not include the cost of your pension in your taxable wages it is fully taxable. Also, for your pension to be fully taxable, any contributions you've made toward your pension must have been returned untaxed.
Partially Taxable Pensions
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If you have made contributions to your pension with personal funds remaining after paying your taxes, the portion of your pension accounted for by those contributions is not taxable.
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Early Pensions
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Pension payments received by an individual who is under the age of 59 and 1/2 are always subject to a 10 percent tax.
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