Updated October 18, 2026. Quick answer: The Simplified Method Worksheet figures the taxable part of a pension or annuity when the Form 1040 instructions say you must use that method. It works from your total payments, your cost in the plan and a factor from a table. Line 9 is the taxable amount, and it goes on Form 1040 or 1040-SR, line 5b.
Related reading on this site: IRS Publication 575, IRS Publication 554, IRS Publication 587 and IRS publications by number.
What this worksheet is for
The instructions open the rule with “You must use the Simplified Method if either of the following applies.” The first case is “Your annuity starting date was after July 1, 1986, and you used this method last year to figure the taxable part.” The second case begins “Your annuity starting date was after November 18, 1996, and both of the following apply.” Then the instructions send you to the worksheet: “If you must use the Simplified Method, complete the Simplified Method Worksheet in these instructions to figure the taxable part of your pension or annuity.”
Two terms matter before you start. “Your annuity starting date is the later of the first day of the first period for which you received a payment”. And “Your cost is generally your net investment in the plan as of the annuity starting date.” “Your net investment may be shown in box 9b of Form 1099-R.” Publication 575 describes the method this way: “Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments.”
This is the worksheet behind Form 1040 lines 5a and 5b. The payer’s figures are on Form 1099-R box 1, and it is part of the set at Form 1040 worksheets.
The worksheet line by line
| Line | What the worksheet says |
|---|---|
| 1 | “Enter the total pension or annuity payments from Form 1099-R, box 1.” “Also, enter this amount on Form 1040 or 1040-SR, line 5a” |
| 2 | “Enter your cost in the plan at the annuity starting date” |
| 3 | “Enter the appropriate number from Table 1 below.” “But if your annuity starting date was after 1997 and the payments are for your life” and that of your beneficiary, “enter the appropriate number from Table 2 below” |
| Note before line 4 | “If you completed this worksheet last year, skip line 3 and enter the amount from line 4” |
| 4 | “Divide line 2 by the number on line 3” |
| 5 | “Multiply line 4 by the number of months for which this year’s payments were made.” “If your annuity starting date was before 1987, skip lines 6 and 7 and enter this amount on line 8.” |
| 6 | “Enter the amount, if any, recovered tax free in years after 1986.” |
| 7 | “Subtract line 6 from line 2” |
| 8 | “Enter the smaller of line 5 or line 7” |
| 9 | “Taxable amount. Subtract line 8 from line 1. Enter the result, but not less than zero.” “Also, enter this amount on Form 1040 or 1040-SR, line 5b.” |
| 10 | “Was your annuity starting date before 1987?” “Do not complete the rest of this worksheet.” “This is the amount you have recovered tax free through 2025.” |
| 11 | “Balance of cost to be recovered. Subtract line 10 from line 2.” “The payments you receive next year will generally be fully taxable” |
Table 1 and Table 2 sit under the worksheet and give the number for line 3 by age or combined ages at the annuity starting date. Read your number from those tables in your own instructions.
A worked example
Illustration, not an IRS example. Every input is invented, including the line 3 number, which in a real return comes from the tables under the worksheet: suppose line 3 is 300.
| Item | Illustration |
|---|---|
| Line 1 (payments received this year) | $12,000 |
| Line 2 (cost in the plan) | $60,000 |
| Line 3 (invented table number) | 300 |
| Line 4, computed: line 2 divided by line 3 | $200 |
| Line 5, computed: line 4 x 12 months | $2,400 |
| Line 6 (recovered tax free after 1986) | $0 |
| Line 7, computed: line 2 minus line 6 | $60,000 |
| Line 8, computed: smaller of line 5 or line 7 | $2,400 |
| Line 9, computed: line 1 minus line 8 | $9,600 |
| Line 10, computed: line 6 + line 8 | $2,400 |
| Line 11, computed: line 2 minus line 10 | $57,600 |
Where the number comes from
Line 1 comes from your Form 1099-R: “Enter the total pension or annuity payments from Form 1099-R, box 1.” Your cost is the net investment described above. Line 3 comes from a table. For line 6, the worksheet reads “Enter the amount, if any, recovered tax free in years after 1986.” The instructions add one more input for some filers: “If you completed this worksheet last year, skip line 3 and enter the amount from line 4”. For more than one partially taxable pension, the worksheet says to figure “the taxable part of each separately.”
Where it goes next
Line 9 is captioned “Taxable amount. Subtract line 8 from line 1. Enter the result, but not less than zero.” It continues “Also, enter this amount on Form 1040 or 1040-SR, line 5b.” The next sentence covers a payer’s larger figure: “If your Form 1099-R shows a larger amount, use the amount on this line instead of the amount from Form 1099-R.” Line 11 then sets up next year: “Balance of cost to be recovered. Subtract line 10 from line 2.” See also pension and annuity decisions and Form 1040.
Edition and line numbers
This page reads the 2025 Instructions for Form 1040 and 1040-SR, the current file irs.gov served on 2026-10-18. It is byte-identical to the archived copy, and the Simplified Method Worksheet in it is for the tax year 2025 return, filed in 2026. Check the tax year printed on the worksheet in your own instructions and use that year’s line numbers, because a different year’s worksheet can number or word its lines differently.
Common mistakes
- Using the worksheet when the instructions point elsewhere. For Civil Service benefits the instructions say “If you received U.S. Civil Service retirement benefits and you chose the alternative annuity option, see Pub. 721 to figure the taxable part of your annuity.”
- Guessing the annuity starting date. The worksheet turns on that date, which the instructions define as “the later of the first day of the first period for which you received a payment or the date the plan’s obligations became fixed.”
- Skipping line 3 without having last year’s worksheet. The note allows that only if “If you completed this worksheet last year, skip line 3 and enter the amount from line 4”.
Related: Form 1040 lines 5a and 5b, Form 1099-R box 1, pension and annuity decisions, and Form 1040.
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Answer againSources
- Instructions for Form 1040 and 1040-SR (2025): https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
- Publication 575, Pension and Annuity Income (2025 returns): https://www.irs.gov/pub/irs-pdf/p575.pdf
- Form 1040 (2025): https://www.irs.gov/pub/irs-pdf/f1040.pdf
Read from the IRS documents linked above on October 18, 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.