Updated October 28, 2026. Quick answer: Publication 939 prints two worksheets for working out the tax-free part of an annuity under the General Rule when you make the Regulations section 1.72-6(d)(6) election: Worksheet I for a single annuitant with no survivor annuity, Worksheet II for a joint and survivor annuity. Both end in an exclusion ratio of your investment in the contract to the expected return.
Related reading on this site: IRS Publication 939.
What these worksheets are for
“Under the General Rule, the tax-free part of each annuity payment is based on the ratio of your investment in the contract” to the total expected return. Publication 575 says it does not cover the method itself: “it won’t help you use it to determine the tax treatment of your pension or annuity income.” Qualified plans mostly use the Simplified Method worksheet instead. The publication introduces these two as “Worksheets I and II follow for determining your taxable annuity under Regulations Section 1.72-6(d)(6) Election.”
Worksheet I: single annuitant, no survivor annuity
| Line | What the worksheet says |
|---|---|
| Heading | “For Determining Taxable Annuity Under Regulations Section 1.72-6(d)(6)” “Election for Single Annuitant With No Survivor Annuity” |
| A(1) | “Net cost (total cost less returned premiums, dividends, etc.)” |
| A(2) | “Annual annuity allocation:” “Portion of net cost in A(1) x annual annuity” |
| A(3) | “Guaranteed under the contract” |
| A(4) | “Number of years guaranteed, rounded to whole years:” “A(3) divided by A(2)” |
| A(5) | “Applicable percentages* from Tables III and VII” |
| A(6) | “Refund feature adjustment:” “A(5) times lesser of A(1) or A(3)” |
| B(3) | “Investment in the contract adjusted for refund feature:” “B(1) minus B(2)” |
| C(1) | “Annual Annuity:” “12 times monthly annuity” |
| C(2) | “Expected return multiples from Tables I and V” |
| C(3) | “Expected Return:” “C(1) times C(2)” |
| D(1) | “Exclusion ratio, as a decimal rounded to three places:” “B(3) divided by C(3)” |
| D(2) | “Tax-free part of annuity:” “C(1) times D(1)” |
Worksheet II: joint and survivor annuity
| Line | What the worksheet says |
|---|---|
| Heading | “Election for Joint and Survivor Annuity” |
| C(1) | “Multiples for both annuitants, Tables II and VI” |
| C(2) | “Multiple for retiree. Tables I and VI” |
| C(3) | “Multiple for survivor:” “C(1) minus C(2)” |
| C(4) | “Annual annuity to survivor:” “12 times potential monthly rate for survivor” |
| C(5) | “Expected return for survivor:” “C(3) times C(4)” |
| C(6) | “Annual annuity to retiree:” “12 times monthly rate for retiree” |
| C(7) | “Expected return for retiree:” “C(2) times C(6)” |
| C(8) | “Total expected return:” “C(5) plus C(7)” |
| D(1) | “Exclusion ratio, as a decimal rounded to three places:” “B(3) divided by C(8)” |
| D(2) | “Retiree’s tax-free part of annuity:” “C(6) times D(1)” |
| D(3) | “Survivor’s tax-free part of annuity, if surviving after death of retiree:” “C(4) times D(1)” |
Example: the last two steps of Worksheet I
Illustration, not an IRS example. Every input is invented, each result is computed from them, and the multiples come from the actuarial tables at the end of the publication, which this page does not reproduce.
| Item | Illustration |
|---|---|
| B(3): investment in the contract adjusted for the refund feature (invented) | $60,000 |
| C(1): annual annuity, 12 times a monthly annuity of $1,000 (invented) | $12,000 |
| C(3): expected return (invented) | $100,000 |
| D(1), computed: B(3) divided by C(3), three places | 0.600 |
| D(2), computed: C(1) x D(1) | $7,200 (computed) |
A ratio of 0.600 means 60 percent of each payment is the return of your investment, so $7,200 of the $12,000 for the year is tax free.
Edition
This page reads Publication 939 (12-2025), the current file irs.gov served on 2026-10-28 (sha256 in the kit data). The worksheets in it are for the tax year 2025 return, filed in 2026. Check the tax year printed on the worksheet in your own copy and use that year’s line numbers and dollar amounts, because a different year’s worksheet can word its lines differently.
Common mistakes
- Using Worksheet I when a survivor will keep receiving payments: that is Worksheet II.
- Skipping the refund feature adjustment in part A. The worksheets point to the percentages in Tables III and VII.
- Overlooking that both worksheets print a Pre-July 1986 column and a Post-June 1986 column.
- Using the General Rule for a qualified plan with an annuity starting date after November 18, 1996: Pub. 575 says you generally can’t.
Related: Simplified Method worksheet, Publication 575, and pension annuity rollover eligibility.
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Answer againSources
- Publication 939 (12-2025), General Rule for Pensions and Annuities: https://www.irs.gov/pub/irs-pdf/p939.pdf
- Publication 575 (2025), Pension and Annuity Income: https://www.irs.gov/pub/irs-pdf/p575.pdf
Read from the IRS documents linked above on October 28, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.