Annuities are taxed on an accrual basis: as income is earned even if not received (e.g., during the accumulation phase of a deferred annuity)

Taxation depends on the type of annuity.

• accrued
• prescribed
• nonprescribed
• structured settlements

Requirements

• owner = annuitant
• payments start by the end of the calendar year of purchase
• guarantee ends by the annuitant’s 91st birthday
• level annuity payments (except for the reduction in payments to a survivor with joint & last survivor)

Accrued

• interest earned on the annuity principal is reported annually