Taxes on Your Retirement Benefits - PSERs
Taxes on Your Retirement Benefits - PSERs
Taxes on Your Retirement Benefits - PSERs
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Public School Employees’ <strong>Retirement</strong> System<br />
Let’s Talk About<br />
<str<strong>on</strong>g>Taxes</str<strong>on</strong>g> <strong>on</strong> <strong>Your</strong><br />
<strong>Retirement</strong><br />
<strong>Benefits</strong><br />
Publicati<strong>on</strong> # 9600 2/2009
The informati<strong>on</strong> c<strong>on</strong>tained in this publicati<strong>on</strong><br />
is intended <strong>on</strong>ly for general guidance and<br />
does not cover every relevant tax law. PSERS<br />
must c<strong>on</strong>form to the Internal Revenue Code<br />
and other federal and Pennsylvania statutes.<br />
The provisi<strong>on</strong>s of the Internal Revenue Code<br />
or other applicable statutes supersede the<br />
informati<strong>on</strong> c<strong>on</strong>tained in this publicati<strong>on</strong>.<br />
The disclaimer of liabilities c<strong>on</strong>tained in this<br />
publicati<strong>on</strong> apply to written or oral informati<strong>on</strong><br />
or advice you may receive from PSERS.<br />
We encourage you to seek advice from your<br />
tax c<strong>on</strong>sultant or the Internal Revenue Service<br />
(IRS).
Table of C<strong>on</strong>tents<br />
<str<strong>on</strong>g>Taxes</str<strong>on</strong>g> <strong>on</strong> <strong>Your</strong> Benefit ...................... 1<br />
Understanding <strong>Your</strong> C<strong>on</strong>tributi<strong>on</strong>s<br />
& Interest — Definiti<strong>on</strong>s ............ 2<br />
Refunding <strong>Your</strong> C<strong>on</strong>tributi<strong>on</strong>s<br />
& Interest ................................... 3<br />
Federal Tax Withholding <strong>on</strong><br />
Lump-Sum Payments ............ 4<br />
Receiving a <strong>Retirement</strong><br />
Benefit .................................. 7<br />
Rollover Informati<strong>on</strong> for<br />
Refunds and <strong>Retirement</strong>s ..........11<br />
<strong>Retirement</strong> Under Age 55 .............. 14<br />
<strong>Retirement</strong> Over Age 55 ................ 15<br />
<strong>Retirement</strong> at Age 75 or Older ....... 16<br />
Disability <strong>Retirement</strong> ..................... 16<br />
Members with a Frozen Annuity .... 17<br />
M<strong>on</strong>thly <strong>Retirement</strong><br />
Benefit Taxati<strong>on</strong> ....................... 17<br />
M<strong>on</strong>thly <strong>Retirement</strong> Benefit Federal<br />
Withholding .............................. 18<br />
Tax Statement Form 1099-R ......... 21<br />
C<strong>on</strong>tacting PSERS ....................... 24
<str<strong>on</strong>g>Taxes</str<strong>on</strong>g> <strong>on</strong> <strong>Your</strong> Benefit<br />
This pamphlet provides a general<br />
descripti<strong>on</strong> of the taxati<strong>on</strong> methods<br />
in effect at the time of publishing this<br />
pamphlet. If you retired before<br />
November 19, 1996, other methods of<br />
federal taxati<strong>on</strong> may apply.<br />
PSERS suggests you obtain Internal<br />
Revenue Service (IRS) Publicati<strong>on</strong> 575,<br />
Pensi<strong>on</strong> and Annuity Income (including<br />
Simplified General Rule) or Publicati<strong>on</strong><br />
939, General Rule for Pensi<strong>on</strong>s and<br />
Annuities for tax regulati<strong>on</strong>s specific to<br />
your date of retirement.<br />
IRS publicati<strong>on</strong>s are available from<br />
the IRS by calling 1-800-829-3676<br />
or by accessing the IRS website at<br />
www.irs.gov.<br />
You may want to c<strong>on</strong>sider c<strong>on</strong>sulting a<br />
tax professi<strong>on</strong>al, such as an accountant,<br />
before you complete your PSERS Applicati<strong>on</strong><br />
for <strong>Retirement</strong> (PSRS-8) or<br />
PSERS Refund Applicati<strong>on</strong> (PSRS-59,<br />
1244, or 1246). For informati<strong>on</strong><br />
regarding the specific taxati<strong>on</strong> of your<br />
pensi<strong>on</strong> benefits, please c<strong>on</strong>sult a tax<br />
professi<strong>on</strong>al or the IRS. PSERS cannot<br />
provide individual tax advice.<br />
PSERS is c<strong>on</strong>sidered a qualified trust under<br />
Secti<strong>on</strong> 401(a) of the Internal Revenue Code<br />
and is a defined benefit plan.<br />
1
Understanding <strong>Your</strong><br />
C<strong>on</strong>tributi<strong>on</strong>s & Interest —<br />
Definiti<strong>on</strong>s<br />
C<strong>on</strong>tributi<strong>on</strong>s and Interest<br />
<strong>Your</strong> c<strong>on</strong>tributi<strong>on</strong>s and interest include:<br />
• All retirement c<strong>on</strong>tributi<strong>on</strong>s deducted<br />
from your paycheck.<br />
• Any purchase of service payments<br />
you made.<br />
• Funds paid <strong>on</strong> Purchase of Service<br />
from a distributi<strong>on</strong> rolled into<br />
PSERS.<br />
• Interest applied to c<strong>on</strong>tributi<strong>on</strong>s.<br />
Pickup C<strong>on</strong>tributi<strong>on</strong>s<br />
Pickup c<strong>on</strong>tributi<strong>on</strong>s are regular retirement<br />
c<strong>on</strong>tributi<strong>on</strong>s deducted from your<br />
paycheck after December 31, 1982,<br />
(excludes purchase of service installment<br />
payments).<br />
Pickup c<strong>on</strong>tributi<strong>on</strong>s are excluded from<br />
your gross income for federal tax<br />
purposes <strong>on</strong>ly and are federally tax<br />
deferred. You pay federal tax <strong>on</strong> these<br />
c<strong>on</strong>tributi<strong>on</strong>s when you receive the<br />
m<strong>on</strong>ey as part of your retirement benefit<br />
or refund.<br />
2
Pre-87 Investment in C<strong>on</strong>tract<br />
Pre-87 Investment in C<strong>on</strong>tract<br />
c<strong>on</strong>tributi<strong>on</strong>s are:<br />
• All regular retirement c<strong>on</strong>tributi<strong>on</strong>s<br />
received by PSERS prior to<br />
January 1, 1983.<br />
• All purchase of service payments<br />
received by PSERS before<br />
January 1, 1987.<br />
Post-86 Investment in C<strong>on</strong>tract<br />
Post-86 Investment in C<strong>on</strong>tract<br />
c<strong>on</strong>tributi<strong>on</strong>s are all purchase of service<br />
payments received by PSERS after<br />
December 31, 1986.<br />
Total Investment in C<strong>on</strong>tract<br />
Total Investment in C<strong>on</strong>tract c<strong>on</strong>tributi<strong>on</strong>s<br />
include both:<br />
• Pre-87 Investment in C<strong>on</strong>tract.<br />
• Post-86 Investment in C<strong>on</strong>tract.<br />
Refunding <strong>Your</strong><br />
C<strong>on</strong>tributi<strong>on</strong>s & Interest<br />
A refund of all of your c<strong>on</strong>tributi<strong>on</strong>s and<br />
interest within <strong>on</strong>e tax year represents<br />
a qualified lump-sum distributi<strong>on</strong> for<br />
federal income tax purposes. More<br />
informati<strong>on</strong> regarding a refund payment<br />
and federal taxes is available <strong>on</strong><br />
PSERS refund applicati<strong>on</strong>s.<br />
3
Federal Tax Withholding <strong>on</strong><br />
Lump-Sum Payments<br />
Receiving a Refund<br />
If you elect to receive your taxable<br />
c<strong>on</strong>tributi<strong>on</strong>s and interest paid directly<br />
to you, PSERS must withhold a<br />
mandatory 20% federal withholding tax.<br />
<strong>Your</strong> tax liability <strong>on</strong> the payment may be<br />
more or less than 20%, based <strong>on</strong> your<br />
total taxable income for the year in which<br />
you received the payment.<br />
Payment of Investment in C<strong>on</strong>tract<br />
If you have any Investment in C<strong>on</strong>tract<br />
c<strong>on</strong>tributi<strong>on</strong>s in your PSERS account,<br />
no tax will be withheld. <str<strong>on</strong>g>Taxes</str<strong>on</strong>g> were<br />
previously paid <strong>on</strong> these c<strong>on</strong>tributi<strong>on</strong>s.<br />
Taxati<strong>on</strong> of Lump-Sum<br />
Distributi<strong>on</strong>s<br />
<strong>Your</strong> refund may be eligible for <strong>on</strong>e or<br />
more of the following favorable tax<br />
treatments:<br />
<br />
Rollover<br />
You may elect to have PSERS<br />
directly roll over your taxable c<strong>on</strong>tributi<strong>on</strong>s<br />
and interest to an eligible<br />
retirement plan willing to accept the<br />
rollover. This would defer taxati<strong>on</strong><br />
of the m<strong>on</strong>ey until you withdraw the<br />
m<strong>on</strong>ey from that plan.<br />
4
If you choose to have your refund<br />
sent directly to you after you receive<br />
the taxable c<strong>on</strong>tributi<strong>on</strong>s and<br />
interest, you have 60 days to place<br />
the m<strong>on</strong>ey in an IRA or any other<br />
eligible retirement plan. The 20%<br />
federal withholding tax originally<br />
withheld by PSERS may be<br />
recovered when you file your federal<br />
income tax return.<br />
If you want to roll over 100% of the<br />
taxable porti<strong>on</strong> of your lump-sum or<br />
partial lump-sum payment, you will<br />
have to replace the m<strong>on</strong>ey withheld<br />
for federal taxes out of your own<br />
m<strong>on</strong>ey.<br />
C<strong>on</strong>tributi<strong>on</strong>s and interest for n<strong>on</strong>-qualifying<br />
service are not eligible to be rolled over. A<br />
separate payment would be made to you<br />
minus a mandatory 10% federal tax<br />
withholding.<br />
Terminating Service Before Age 55<br />
& Refunding<br />
If you terminate service before age 55<br />
and choose to receive a lump-sum or<br />
installment payments before age 59 1/2,<br />
an additi<strong>on</strong>al 10% penalty tax may apply<br />
to the taxable porti<strong>on</strong> of any refund<br />
payment received before age 59 1/2.<br />
To avoid this additi<strong>on</strong>al tax, you may<br />
choose to do <strong>on</strong>e of the following:<br />
• Elect a direct rollover to an eligible<br />
retirement plan.<br />
5
• Roll over the refund payment to an<br />
IRA or other eligible retirement plan<br />
within 60 days of receipt.<br />
• Defer payments until age 59 1/2.<br />
Refunds & State Income Tax<br />
If you reside in Pennsylvania, no porti<strong>on</strong><br />
of your refunded c<strong>on</strong>tributi<strong>on</strong>s and<br />
interest is subject to Pennsylvania state<br />
or local income tax. If you reside in<br />
another state, you must check with your<br />
state and local authorities to determine<br />
your tax resp<strong>on</strong>sibility. If the state where<br />
you reside taxes your benefit, you must<br />
pay your taxes directly to your taxing<br />
authority. PSERS cannot withhold state<br />
taxes from your refund payment.<br />
Refunds & The IRS Form 1099-R<br />
The IRS Form 1099-R is used when<br />
preparing your annual federal income<br />
tax return. The Form 1099-R shows the<br />
amount of m<strong>on</strong>ey you received from<br />
PSERS during the previous calendar<br />
year and provides a breakdown by<br />
distributi<strong>on</strong> code of the following<br />
informati<strong>on</strong>: gross distributi<strong>on</strong>, taxable<br />
amount, and tax withheld.<br />
PSERS will automatically send your<br />
Form 1099-R by the end of January<br />
following the calendar year in which your<br />
refund was paid. If you have not received<br />
6
your Form 1099-R by February 10,<br />
c<strong>on</strong>tact PSERS for your duplicate copy,<br />
or you may access a copy via the<br />
PSERS website at:<br />
www.psers.state.pa.us.<br />
Obtaining a copy from the PSERS<br />
website will require you to register<br />
through the website as a site user.<br />
Once registered, you will be able to<br />
obtain your informati<strong>on</strong> through a secure<br />
server using your own pers<strong>on</strong>al password.<br />
Please remember to notify PSERS of<br />
any address or name change between<br />
the time you receive your refund<br />
payment and the mailing of your Form<br />
1099-R.<br />
Receiving a <strong>Retirement</strong><br />
Benefit<br />
If you elect to withdraw any porti<strong>on</strong> of<br />
your c<strong>on</strong>tributi<strong>on</strong>s and interest, this type<br />
of withdrawal is classified as a partial<br />
lump-sum payment and is deemed by<br />
the IRS as a n<strong>on</strong>-periodic payment.<br />
<strong>Your</strong> m<strong>on</strong>thly retirement payment is a<br />
periodic payment according to the<br />
Internal Revenue Code. Any retroactive<br />
retirement payment may be treated as<br />
periodic or n<strong>on</strong>-periodic based <strong>on</strong> the<br />
nature of the payment.<br />
7
The IRS has various rules for taxing<br />
partial lump-sum payments and m<strong>on</strong>thly<br />
retirement benefit payments.<br />
Special Rule for Partial<br />
Lump-Sum Payments<br />
The federal Technical and Miscellaneous<br />
Revenue Act of 1988, allows a<br />
PSERS retiree to immediately exclude<br />
an amount up to the Pre-87 Investment<br />
in C<strong>on</strong>tract from federal taxati<strong>on</strong>.<br />
To qualify you must:<br />
• Receive all of your Pre-87 Investment<br />
in C<strong>on</strong>tract as a partial lumpsum<br />
payment at time of your first<br />
retirement benefit check.<br />
• Roll over your Pre-87 Investment in<br />
C<strong>on</strong>tract as a partial lump-sum<br />
payment at time of your first<br />
retirement benefit payment to a plan<br />
that will accept rollovers of previously<br />
taxed funds.<br />
• Receive or roll over a porti<strong>on</strong> less<br />
than the total of your Pre-87<br />
Investment in C<strong>on</strong>tract as a partial<br />
lump-sum payment with your first<br />
retirement benefit check. If you elect<br />
to receive or roll over an amount less<br />
than the total Pre-87 Investment in<br />
C<strong>on</strong>tract, you will recover the<br />
8
emainder of your Investment in<br />
C<strong>on</strong>tract over the life of your annuity<br />
using the IRS Simplified General<br />
Rule Method. (See page 10.)<br />
NOTE: Any installment payments of the<br />
Pre-87 Investment in C<strong>on</strong>tract taking<br />
place after you receive the first<br />
retirement benefit check will be taxable,<br />
and you will receive a tax credit through<br />
the IRS Simplified General Rule Method.<br />
If you elect to leave your Pre-87 Investment<br />
in C<strong>on</strong>tract m<strong>on</strong>ey in your account<br />
and receive it as part of your m<strong>on</strong>thly<br />
annuity check, the IRS Simplified<br />
General Rule Method applies. (See<br />
page 10, “IRS Simplified General Rule<br />
& How it Works.”)<br />
Post-86 Investment in C<strong>on</strong>tract<br />
Recovery<br />
If you elect to withdraw your Post-86<br />
Investment in C<strong>on</strong>tract as a porti<strong>on</strong> of<br />
your partial lump-sum, the amount is<br />
subject to the regular 20% federal tax<br />
withholding. You will recover the tax<br />
exclusi<strong>on</strong> amount of your Post-86<br />
Investment in C<strong>on</strong>tract under the IRS<br />
Simplified General Rule method. (See<br />
page 10, “The IRS Simplified General<br />
Rule.” )<br />
9
The IRS Simplified General Rule<br />
The applicati<strong>on</strong> of the IRS Simplified<br />
General Rule results in a m<strong>on</strong>thly<br />
exclusi<strong>on</strong> based <strong>on</strong> the amount of your<br />
Investment in C<strong>on</strong>tract and the expected<br />
number of m<strong>on</strong>thly payments.<br />
This exclusi<strong>on</strong> will remain c<strong>on</strong>stant over<br />
the life of your annuity until you have<br />
excluded all of the Investment in C<strong>on</strong>tract<br />
to your credit.<br />
The exclusi<strong>on</strong> will be applied if you have<br />
Investment in C<strong>on</strong>tract and either:<br />
• Elect to receive <strong>on</strong>ly a m<strong>on</strong>thly<br />
benefit.<br />
• Have any Pre-1987 Investment in<br />
C<strong>on</strong>tract remaining after you receive<br />
a partial lump-sum payment with<br />
your first annuity payment.<br />
• Have been granted and are<br />
receiving a disability retirement<br />
benefit from PSERS.<br />
IRS Simplified General Rule &<br />
How it Works<br />
The method determines the n<strong>on</strong>taxable<br />
and taxable amount of each m<strong>on</strong>thly<br />
retirement check.<br />
If you retired and selected the Maximum<br />
Opti<strong>on</strong> or Opti<strong>on</strong> 1:<br />
10
The remaining Investment in C<strong>on</strong>tract<br />
m<strong>on</strong>ey is divided by the number<br />
of anticipated m<strong>on</strong>thly payments the<br />
IRS projects you will receive over the<br />
lifetime of the annuity, based <strong>on</strong> your<br />
age at the time of retirement. After<br />
you have recovered the total amount<br />
of your Investment in C<strong>on</strong>tract, any<br />
subsequent m<strong>on</strong>thly annuity payments<br />
are fully taxable.<br />
If you retired and selected Opti<strong>on</strong>s 2, 3,<br />
or the Special Opti<strong>on</strong> 4:<br />
The remaining Investment in<br />
C<strong>on</strong>tract m<strong>on</strong>ey is divided by the<br />
number of anticipated m<strong>on</strong>thly<br />
payments the IRS projects you will<br />
receive over the lifetime of the<br />
annuity, based <strong>on</strong> your age at the<br />
time of retirement combined with the<br />
age of your survivor annuitant. After<br />
you have recovered the total amount<br />
of your Investment in C<strong>on</strong>tract, any<br />
subsequent m<strong>on</strong>thly annuity<br />
payments are fully taxable.<br />
Rollover Informati<strong>on</strong> for<br />
Refunds and <strong>Retirement</strong>s<br />
<strong>Your</strong> lump-sum (refund) or partial lumpsum<br />
(retirement) is eligible to be rolled<br />
over into an “Eligible <strong>Retirement</strong> Plan.”<br />
Eligible Plans<br />
PSERS allows you to roll over your<br />
funds into the following “Eligible <strong>Retirement</strong><br />
Plans”:<br />
11
• Individual <strong>Retirement</strong> Account<br />
(IRA-regular)<br />
• Roth IRA<br />
• A 403(b) tax sheltered annuity<br />
• A governmental 457(b) deferred<br />
compensati<strong>on</strong> program<br />
• A Simplified Employee Pensi<strong>on</strong><br />
(SEP)<br />
• A Safe Harbor 401(K)<br />
• Other qualified plan as described in<br />
Secti<strong>on</strong> 401(a) of the Code<br />
As the named account holder, you must<br />
be the primary beneficiary and/or sole<br />
owner of the “Eligible <strong>Retirement</strong> Plan.”<br />
Ways to Roll Over <strong>Your</strong> Funds<br />
There are two ways to roll over your<br />
c<strong>on</strong>tributi<strong>on</strong>s and interest:<br />
• Direct Rollovers<br />
You authorize PSERS to send the<br />
rollover directly to an eligible<br />
retirement plan’s administrator by<br />
completing the PSERS Authorizati<strong>on</strong><br />
for Direct Rollover (Refund)<br />
form (PSRS-1243) with either the<br />
Applicati<strong>on</strong> for Refund (PSRS-59),<br />
or the Applicati<strong>on</strong> for Refund - Installments<br />
(PSRS-1244), or by<br />
submitting the Authorizati<strong>on</strong> for<br />
Direct Rollover (<strong>Retirement</strong>) form<br />
12
(PSRS-1264) with the Applicati<strong>on</strong><br />
for <strong>Retirement</strong> (PSRS-8).<br />
The <strong>on</strong>ly forms PSERS will accept<br />
to process rollovers are the PSERS<br />
Authorizati<strong>on</strong> for Direct Rollover<br />
forms. We will not roll your m<strong>on</strong>ey<br />
using a private company’s authorizati<strong>on</strong><br />
form.<br />
• N<strong>on</strong>-Direct Rollovers<br />
You may choose to have the lumpsum<br />
or the partial lump-sum<br />
porti<strong>on</strong>(s) paid to you. <strong>Your</strong> first<br />
payment will c<strong>on</strong>sist of any eligible<br />
n<strong>on</strong>taxable distributi<strong>on</strong>s you wish to<br />
receive. PSERS must withhold 20%<br />
federal withholding tax <strong>on</strong> the<br />
taxable porti<strong>on</strong> of your payment.<br />
Within 60 days of receipt of your<br />
payment, you may elect to roll over<br />
your distributi<strong>on</strong> to an eligible<br />
retirement plan. Under these<br />
circumstances, you would be<br />
resp<strong>on</strong>sible to execute the rollover<br />
with your financial instituti<strong>on</strong>.<br />
For n<strong>on</strong>-direct rollovers, your financial<br />
instituti<strong>on</strong> should provide you with the<br />
necessary forms to complete. You<br />
may be able to recover your withheld<br />
taxes when you file your federal<br />
income tax return.<br />
13
Rollovers - Age 70 1/2<br />
The IRS has special rules about<br />
rollovers and distributi<strong>on</strong>s when you<br />
reach age 70 1/2. PSERS may not be<br />
able to roll 100% of your c<strong>on</strong>tributi<strong>on</strong>s<br />
and interest <strong>on</strong> your behalf. You must<br />
begin to receive a minimum amount from<br />
your IRA or other plan by April 1 st<br />
following the tax year in which you attain<br />
age 70 1/2.<br />
Rolling <strong>Your</strong> M<strong>on</strong>thly Benefit<br />
IRS regulati<strong>on</strong>s do not permit you to roll<br />
over your m<strong>on</strong>thly retirement benefits.<br />
You may <strong>on</strong>ly roll over c<strong>on</strong>tributi<strong>on</strong>s and<br />
interest (partial lump-sum payments).<br />
<strong>Retirement</strong> Under Age 55<br />
Tax <strong>on</strong> Early Distributi<strong>on</strong>s<br />
The IRS imposes a 10% tax <strong>on</strong> early<br />
distributi<strong>on</strong>s. The tax <strong>on</strong> early distributi<strong>on</strong>s<br />
is <strong>on</strong> the taxable porti<strong>on</strong> of any<br />
partial lump-sum payment(s).<br />
You are subject to this tax if you are<br />
under age 55 in the year that you<br />
terminate service and choose to receive<br />
any partial lump-sum payment(s) before<br />
reaching age 59 1/2.<br />
PSERS does not deduct the tax <strong>on</strong> early<br />
distributi<strong>on</strong> from your partial lump-sum<br />
payment. You are resp<strong>on</strong>sible for paying<br />
the 10% tax <strong>on</strong> early distributi<strong>on</strong>s directly<br />
to the IRS. (See IRS Form 5329.)<br />
14
Tax Exempti<strong>on</strong> <strong>on</strong> Early<br />
Distributi<strong>on</strong>s<br />
You are not subject to the tax <strong>on</strong> early<br />
distributi<strong>on</strong>s if <strong>on</strong>e of the following<br />
applies:<br />
• You roll your c<strong>on</strong>tributi<strong>on</strong>s and<br />
interest into an eligible retirement<br />
plan and do not withdraw it from the<br />
plan until you reach age 59 1/2.<br />
• You retire and choose to receive an<br />
amount not to exceed your Pre-87<br />
Investment in C<strong>on</strong>tract in a single<br />
partial lump-sum disbursement at<br />
the time of first payment.<br />
• You elect to withdraw your<br />
c<strong>on</strong>tributi<strong>on</strong>s and interest but<br />
postp<strong>on</strong>e the payment until you<br />
reach age 59 1/2. If you make this<br />
selecti<strong>on</strong>, your c<strong>on</strong>tributi<strong>on</strong>s and<br />
interest will c<strong>on</strong>tinue to earn 4%<br />
interest until the time of withdrawal.<br />
<strong>Retirement</strong> Over Age 55<br />
If you are at least age 55 in the year you<br />
terminate service, the tax <strong>on</strong> early<br />
distributi<strong>on</strong>s does not apply to you.<br />
15
<strong>Retirement</strong> at Age 75 or<br />
Older<br />
Special taxati<strong>on</strong> rules apply if you retire<br />
at age 75 or older. Refer to IRS<br />
Publicati<strong>on</strong> 575, Pensi<strong>on</strong> and Annuity<br />
Income and Publicati<strong>on</strong> 939, General<br />
Rule for Pensi<strong>on</strong>s and Annuities for<br />
specific informati<strong>on</strong> for members<br />
retiring at age 75 or older.<br />
Disability <strong>Retirement</strong><br />
If you retire under a PSERS disability<br />
retirement benefit, your m<strong>on</strong>thly<br />
retirement benefits are taxed the same<br />
way as regular m<strong>on</strong>thly retirement<br />
benefits.<br />
Disability and Pre-87 Investment in<br />
C<strong>on</strong>tract C<strong>on</strong>tributi<strong>on</strong>s<br />
Disability retirement does not allow for<br />
the withdrawal of member c<strong>on</strong>tributi<strong>on</strong>s<br />
and interest in a partial lump-sum<br />
payment. Any Pre-87 Investment in<br />
C<strong>on</strong>tract c<strong>on</strong>tributi<strong>on</strong>s a disability<br />
retiree may have in PSERS would have<br />
the IRS Simplified General Rule Method<br />
applied to the taxable rate of the<br />
m<strong>on</strong>thly retirement benefit. (See “The<br />
IRS Simplified General Rule,” page 10.)<br />
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Members with a Frozen<br />
Annuity<br />
Definiti<strong>on</strong><br />
A frozen annuity member is <strong>on</strong>e who has<br />
received a m<strong>on</strong>thly retirement benefit<br />
from PSERS and later returns to Pennsylvania<br />
public school employment and<br />
again makes c<strong>on</strong>tributi<strong>on</strong>s to PSERS.<br />
Tax Informati<strong>on</strong> for You<br />
If your benefit is subject to the frozen<br />
annuity provisi<strong>on</strong> of the <strong>Retirement</strong><br />
Code, all of the informati<strong>on</strong> c<strong>on</strong>tained<br />
in this publicati<strong>on</strong> may not apply to you.<br />
If you are a frozen annuity member, we<br />
str<strong>on</strong>gly suggest you c<strong>on</strong>tact your local<br />
PSERS regi<strong>on</strong>al representative for<br />
additi<strong>on</strong>al informati<strong>on</strong>. (Refer to “C<strong>on</strong>tacting<br />
PSERS” <strong>on</strong> page 24.)<br />
M<strong>on</strong>thly <strong>Retirement</strong><br />
Benefit Taxati<strong>on</strong><br />
<strong>Your</strong> PSERS m<strong>on</strong>thly retirement benefit<br />
is subject to federal taxes. Refer to<br />
“Completing Form W-4P” <strong>on</strong> page 20.<br />
Pennsylvania State & Local <str<strong>on</strong>g>Taxes</str<strong>on</strong>g><br />
M<strong>on</strong>thly retirement benefit payments<br />
from PSERS are exempt from Pennsylvania<br />
state and local taxes.<br />
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Other States’ <str<strong>on</strong>g>Taxes</str<strong>on</strong>g><br />
If you reside in another state, you must<br />
check with your state and local<br />
authorities to determine the taxability of<br />
payments made to you outside of<br />
Pennsylvania. If the state where you<br />
reside taxes your benefit, you must pay<br />
your taxes directly to your taxing<br />
authority. PSERS cannot withhold state<br />
taxes from your m<strong>on</strong>thly retirement<br />
check.<br />
M<strong>on</strong>thly <strong>Retirement</strong> Benefit<br />
Federal Withholding<br />
Completing <strong>Your</strong> Applicati<strong>on</strong> for<br />
<strong>Retirement</strong> (PSRS-8)<br />
You may have PSERS withhold federal<br />
taxes from your m<strong>on</strong>thly benefit<br />
according to the IRS Tax Tables. When<br />
you complete your Applicati<strong>on</strong> for<br />
<strong>Retirement</strong> (PSRS-8), you should indicate<br />
in Secti<strong>on</strong> 6 your withholding<br />
choice.<br />
Electing Tax Withholding<br />
To have PSERS withhold federal taxes,<br />
you must indicate your marital status<br />
and the number of exempti<strong>on</strong>s. You may<br />
ask for an additi<strong>on</strong>al amount to be<br />
withheld in additi<strong>on</strong> to the marital status/<br />
exempti<strong>on</strong> amount. You also have the<br />
opti<strong>on</strong> of choosing a specific amount or<br />
a percentage withheld from each<br />
m<strong>on</strong>thly payment.<br />
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Electing Not to Withhold <str<strong>on</strong>g>Taxes</str<strong>on</strong>g><br />
You may elect to have no taxes<br />
withheld from your m<strong>on</strong>thly check.<br />
Electing that “no taxes” be withheld from<br />
your m<strong>on</strong>thly check does not release you<br />
from your tax liability. You may be<br />
required by the IRS to make quarterly<br />
estimated tax payments to avoid an IRS<br />
imposed penalty.<br />
Incomplete Tax Withholding<br />
Informati<strong>on</strong><br />
If you do not complete Secti<strong>on</strong> 6 of the<br />
PSERS Applicati<strong>on</strong> for <strong>Retirement</strong><br />
(PSRS-8), or the secti<strong>on</strong> is not fully<br />
completed, PSERS will withhold federal<br />
income taxes from your m<strong>on</strong>thly<br />
retirement benefit based <strong>on</strong> the IRS Tax<br />
Tables using “Married with three (3)<br />
exempti<strong>on</strong>s” as required by the IRS.<br />
Changing <strong>Your</strong> Withholding<br />
As a retiree, you may change your<br />
federal withholding rate at anytime. To<br />
change your federal withholding rate,<br />
you must complete and sign IRS Form<br />
W-4P.<br />
<strong>Your</strong> new tax withholding opti<strong>on</strong> will<br />
become effective six to eight weeks<br />
after PSERS receives your new Form<br />
W-4P.<br />
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Completing Form W-4P<br />
When you submit Form W-4P to<br />
PSERS, the withholding selecti<strong>on</strong> <strong>on</strong><br />
the new form supersedes any previous<br />
tax-withholding request you made.<br />
Please keep this in mind, especially if<br />
you are requesting the withholding of an<br />
additi<strong>on</strong>al dollar amount.<br />
PSERS provides an <strong>on</strong>line M<strong>on</strong>thly Federal<br />
Tax Withholding Calculator to help you<br />
estimate how much federal tax will be<br />
withheld from your gross m<strong>on</strong>thly pensi<strong>on</strong><br />
check. The calculator can be found <strong>on</strong> the<br />
PSERS website at:<br />
www.psers.pa.us/calculators.htm.<br />
Example:<br />
You had previously elected “Married with<br />
zero (0) exempti<strong>on</strong>s,” which <strong>on</strong> its own<br />
withheld $125. You requested an<br />
additi<strong>on</strong>al amount of $25 be withheld in<br />
additi<strong>on</strong> to the $125 for a total of $150<br />
per m<strong>on</strong>th federal withholding.<br />
Later, you decide you need an<br />
additi<strong>on</strong>al $50 withheld per m<strong>on</strong>th in<br />
additi<strong>on</strong> to the $150 already being<br />
withheld. You want your total withholding<br />
to be $ 200. When you complete the<br />
new Form W-4P, you must complete it<br />
as though you had never previously<br />
asked for an additi<strong>on</strong>al amount. You<br />
would complete the form with “Married<br />
20
with 0 allowances” ($125) plus an<br />
additi<strong>on</strong>al withholding of $75 for a total<br />
of $200.<br />
You may obtain the IRS Form W-4P by<br />
c<strong>on</strong>tacting PSERS, through the PSERS<br />
website, www.psers.state.pa.us, or<br />
the IRS. The form is available <strong>on</strong> the<br />
IRS website, www.irs.gov.<br />
21<br />
Tax Statement Form 1099-R<br />
Purpose of the IRS Form 1099-R<br />
The IRS Form 1099-R is used when<br />
preparing your annual federal income<br />
tax return.<br />
The Form 1099-R shows the amount of<br />
m<strong>on</strong>ey you received from PSERS<br />
during the previous calendar year and<br />
provides a breakdown by distributi<strong>on</strong><br />
code of the following informati<strong>on</strong>: gross<br />
distributi<strong>on</strong>, taxable amount, federal<br />
income tax withheld, and Investment in<br />
C<strong>on</strong>tract recovered during the year, if<br />
any. You may receive more than <strong>on</strong>e<br />
IRS Form 1099-R for the tax year depending<br />
<strong>on</strong> the applicable distributi<strong>on</strong><br />
code. PSERS must report different<br />
types of retirement payments <strong>on</strong><br />
separate forms. For instance, if you<br />
retired and had PSERS roll over taxable<br />
c<strong>on</strong>tributi<strong>on</strong>s and interest for you, you<br />
should receive at least two (2) forms for<br />
the tax year in which the rollover<br />
occurred.
Form 1099-R Codes<br />
In Box 7 <strong>on</strong> each IRS Form 1099-R,<br />
there is a code shown which identifies<br />
the distributi<strong>on</strong> you received from<br />
PSERS over the preceding tax year.<br />
The following are the codes and the<br />
explanati<strong>on</strong> of the payment:<br />
1 An early (premature) distributi<strong>on</strong> for<br />
which there is no known excepti<strong>on</strong><br />
(See IRS Form 5329.)<br />
2 An early distributi<strong>on</strong> where you have<br />
not reached age 59 1/2<br />
4 A death benefit payment<br />
7 A normal distributi<strong>on</strong> (usually m<strong>on</strong>thly<br />
retirement benefit payments)<br />
A<br />
G<br />
A payment that may qualify for 10-year<br />
averaging.<br />
A payment made as a direct rollover<br />
Mailing of the Form 1099-R<br />
PSERS automatically sends your Form<br />
1099-R by the end of each January. If<br />
you have not received your Form<br />
1099-R by February 10, c<strong>on</strong>tact<br />
PSERS for a duplicate copy, or you may<br />
obtain a copy through the PSERS<br />
website, www.psers.state.pa.us. If<br />
your m<strong>on</strong>thly retirement benefit is sent<br />
via direct deposit or electr<strong>on</strong>ic transfer,<br />
22
please remember to keep your home<br />
address and name current with PSERS<br />
for the mailing of your Form 1099-R.<br />
Who Receives Form 1099-R<br />
The following PSERS payees will<br />
receive an IRS Form 1099-R:<br />
• Retirees receiving a m<strong>on</strong>thly benefit<br />
• Survivor annuitants receiving a<br />
m<strong>on</strong>thly survivor benefit<br />
• Refunded members who received a<br />
lump-sum distributi<strong>on</strong> for the year of<br />
payment<br />
• Alternate payees<br />
• Beneficiaries who received a death<br />
benefit payment for the year of<br />
payment<br />
• A deceased member’s estate for<br />
the filing of the deceased’s income<br />
tax return<br />
Reminder!<br />
PSERS receives many calls inquiring<br />
as to why there is a difference in the<br />
gross distributi<strong>on</strong> and the taxable<br />
amount <strong>on</strong> the Form 1099-R. There are<br />
two possible reas<strong>on</strong>s:<br />
• There was tax-free Pre-87 Investment<br />
in C<strong>on</strong>tract m<strong>on</strong>ey paid during<br />
23
the tax year. Because taxes were<br />
already paid <strong>on</strong> this m<strong>on</strong>ey, the<br />
payment is included in the gross<br />
distributi<strong>on</strong> but excluded from the<br />
taxable amount since no tax is due.<br />
• A porti<strong>on</strong> of the m<strong>on</strong>thly retirement<br />
benefit qualified for the IRS<br />
Simplified General Rule. (See “The<br />
IRS Simplified General Rule,”<br />
page 10.)<br />
C<strong>on</strong>tacting PSERS<br />
You may c<strong>on</strong>tact PSERS toll-free at<br />
1-888-773-7748. We are available to<br />
take your ph<strong>on</strong>e call from 7:30 a.m. to<br />
5:00 p.m., M<strong>on</strong>day through Friday, except<br />
<strong>on</strong> major holidays.<br />
Harrisburg Headquarters<br />
5 North 5 th Street<br />
PO Box 125<br />
Harrisburg PA 17108-0125<br />
Toll-Free: 1-888-773-7748<br />
Local Teleph<strong>on</strong>e: (717) 787-8540<br />
E-mail address:<br />
ra-ps-c<strong>on</strong>tact@state.pa.us<br />
Website:<br />
www.psers.state.pa.us<br />
PSERS also has regi<strong>on</strong>al offices<br />
located throughout the state. Their core<br />
operating hours are 8:30 a.m. to 5:00<br />
p.m. You can find a complete list of all<br />
PSERS regi<strong>on</strong>al offices <strong>on</strong> our website<br />
under Regi<strong>on</strong>al Offices.<br />
24
Public School Employees’ <strong>Retirement</strong> System<br />
5 North 5th Street<br />
PO Box 125<br />
Harrisburg PA 17108-0125