A document published by the Internal Revenue Service (IRS) that provides guidance on how taxpayers are to treat income from pensions and annuities using the General Rule. The IRS breaks monthly income from pensions and annuities into two parts: a tax-free part made up of the money that was contributed by the individual, and a taxable part that represents the positive return on the investment.
Explained further: The General Rule is one of two methods used to calculate the tax-free part of a pension or annuity (the other being the Simplified Method, which is covered in IRS Publication 575). Individuals must use the General Rule if they receive income from a non-qualified plan, or plan that does not meet Internal Revenue Code requirements to receive the tax benefits of a qualified plan.
IRS Publication 939 does not cover income from life insurance or individual retirement accounts (IRAs), and does not provide specific information on how to use the Simplified Method.
Definition courtesy of Investopedia