The percentage of an annuitant’s benefit that is not subject to federal income tax. The portion of the benefit attributable to previously-taxed contributions is not taxable when the benefit is paid.
The exclusion ratio is the ratio of the total investment in the contract (normally the gross premium cost) to the total expected return under the contract. If the annuity is a life annuity with a refund or period-certain guarantee, a special adjustment must be made to the investment in the contract. The exclusion ratio is applied to each annuity payment to find the portion of the payment that is excludable from gross income. If the annuity starting date is after December 31, 1986, the exclusion ratio is applied to the payments received until the investment in the contract is fully recovered; thereafter, any payments received are fully includable in income.
upon annuitization, an exclusion ratio is automatically determined. Only the amount considered growth and/or interest is fully taxed, no the already taxed principal. The exclusion ratio varies depending on the life expectancy of the annuitant, based on mortality tables or the set number of years the contract owner chooses.
With respect to annuity income taxation, a fraction used to determine the amount of annual annuity income exempt from federal income tax. The fraction is found by dividing total contributions or investment in the annuity contract by the expected return.
The ratio of taxable to nontaxable proceeds in an immediate annuity payment.
Calculation used to determine the taxable portion of annuity payments made to the annuitant.
A division of annuity payments which permits the recipient to exclude from his or her taxable income the portion representing return of capital.
Determines how much of each annuity payment is excluded from income tax and how much is taxable when income is received.
The portion of an annuity payment, considered by the tax law to be a return of an initial investment and will not come under income tax when received.
A fraction used to determine the amount of annual annuity income exempt from federal income tax. The exclusion ratio is the total contributions or investment in the annuity divided by the expected ratio.
The portion of an annuity payment, considered by tax law to be a return of your initial investment, that is not subject to income tax when received.
Percentage of each Periodic Payment which is non-taxable for federal income tax purposes when a SPIA is bought with non-qualified after-tax dollars. The Exclusion Ratio represents the return of one's investment over the life of the Contract and will vary depending upon the age of the Annuitant and the payment option. State income taxes vary widely and exclusions for state income tax purposes may not be applicable. Please consult your tax advisor.
For annuities, a formula used to calculate the portion of annuity benefit payments that are excluded from the recipient's taxable income; calculated by dividing the total amount invested in the contract by the total amount expected to be returned from the contract.
The ratio used to determine the portion of the benefit payment from an annuity that is tax free as a return of the investment in the contract. It is the ratio of the total amount invested to the total amount expected to be received.
The computation to figure out the amount of each payment (in the distribution phase) that WILL NOT be taxed. This is determined by dividing your investment (money you put into the annuity) by the total amount your would expect to receive during the payout period. In short, you will not be taxed on your initial investment, only the profits gained from your annuity. Example: You invest $100,000 in an annuity that will pay you $750 a month for life starting at age 62. According to IRS Life Expectancy Tables (see: http://www.irs.gov/pub/irs-pdf/p590.pdf Appendix C) you are expected to live 22.5 more years. This means your annuity value is $202,500. ($750 per month X 12 months per year X 22.5 years). Your exclusion ratio is $100,000/$202,500 = 49.4% (investment/annuity value=exclusion ratio). This means 49.4% of your payouts will not be taxed, however, the other 50.6% is subject to Ordinary Income Taxation – taxed as if it was a paycheck.
The principal amount invested in the annuity contract, divided by the expected return, and expressed as a fraction or a percentage. It is applied to each annuity payment to determine the portion of payment that may be excluded from the annuitant's gross income. The balance is included as gross income the year payment is received.
A tax term that means the investment in the contract divided by the expected return. This portion of each annuity payment is excludable from gross income.
This is the ratio that determines which portion of an annuity distribution is earnings and which portion is a return of the original investment.
