If a taxpayer's pension or annuity includes contributions that were previously included in gross income, the taxpayer may generally do all of the following EXCEPT Assume that the tax-free part of the payment will remain the same each year, even if the amount of the payment changes. O Exclude the distributions from income, but only up to the amount of cost. 1997. Use the general rule to compute the tax-free part of their payments if they began receiving payments after November 18, Use the simplified method to compute the tax-free part of their payments if they began receiving payments after November 18, 1997. Mark for follow up