Federal taxes
Generally, all payments from SERS are subject to Federal Income Tax, except those considered by the IRS to be a return of contributions made by the member prior to January 1, 1982, or contributions made to purchase
Creditable Service after the service was rendered.
The Federal income tax withheld amount listed in Box 4 of Form 1099-R must be included on your Federal Income Tax return in the amount you report as tax withheld. If the amount listed in Box 4 is more than zero, you are required to attach Copy B of each Form 1099-R you receive from SERS to your federal return.
State and local taxes, Pennsylvania residents
Copy 2 of
Form 1099-R is intended for filing with state and/or local income tax returns. However, under the Pennsylvania State Employees’ Retirement Code, SERS are totally exempt from Pennsylvania state and local income taxes. SERS does not furnish copies of
Form 1099-R to any state or local tax agency.
State and local taxes for residents of other states or foreign countries
If you live in another state, you may be subject to state and/or local income tax and may be required to file
Copy 2 of
Form 1099-R. There may be exemptions, deductions, or credits for certain
Annuitants. Certain state and local tax laws may exempt some or all retirement benefits. Contact your state and local revenue offices or a qualified tax consultant for information.
If you live outside the U.S., you should familiarize yourself with any income tax obligations you may have to non-U.S. taxing authorities.
U.S. Citizens (including resident alien)
If you are not a U.S. citizen (including resident alien), you should not receive a
1099-R, rather a
1042-S. Please contact SERS if you receive a
1099-R in error.
Federal Taxable Income Calculation
There are several IRS-approved methods of calculating the taxable and non-taxable portions of SERS benefits. The method used depends upon the date your SERS Annuity began and certain other factors.
In most cases, SERS uses the Simplified Method for calculating the taxable and non-taxable portions of SERS Annuity payments that began after November 18, 1996.
Under this method, previously taxed contributions made after December 31, 1986, can no longer be claimed as totally previously taxed in the year in which they are received. Instead, they are excluded from Federal Income Tax over a period equal to the expected number of payments, based on the member’s age at retirement. If you were over age 75 at your date of retirement, special rules apply.
Total Distributions
If you terminated Service and received your total
Accumulated Deductions during 2012, and you were not entitled to an Annuity, you will receive a
Form 1099-R with the
Box 2b Total Distribution block checked.
If you elected to take the distribution in installments, SERS will provide you with a Form 1099-R for each year you receive an installment. Your Form 1099-R for the year in which you receive your final installment will have the Box 2b Total Distribution block checked.
The Beneficiaries of a deceased SERS member who in 2012 received the member’s total Accumulated Deductions as a lump-sum Death Benefit will receive a Form 1099-R with the Box 2b Total Distribution block checked. The lump-sum Death Benefit payment to a Beneficiary is fully exempt from Pennsylvania state and local taxes.
Disability Annuities
If you retired on disability, you generally must include in income any disability annuity you receive under a plan that is paid for by your employer. You must report your taxable disability payments as wages on IRS
Form 1040 or
Form 1040A until you reach minimum retirement age. See IRS
Publication 575, Pension and Annuity Income, for further information.
Federal Tax Credits
SERS Annuitants or
Survivor Annuitants who receive
Form 1099-R may be eligible for either an earned income credit or a separate credit for the elderly or disabled. For more information about these credits, refer to the instructions for completing IRS
Form 1040 or contact your local IRS office.
Distributions After Death, Federal Tax Implications
Contact the IRS or your professional tax advisor and see IRS
Publication 575, Pension and Annuity Income.
