In general, SERS pension payments are:
subject to federal income tax. Two key exceptions include: payments made to return employee contributions that you made toward your pension prior to 1982, and payments made to return employee contributions you made when purchasing prior creditable service.
exempt from PA state and local income taxes. If you live in PA, your SERS payments are exempt from PA state and local income taxes. As such, we do not provide 1099-R forms to any state or local tax authority.
Several commercial tax preparation programs automatically assess PA state and local taxes on SERS payments. In such cases, you will need to manually change the calculated amounts to avoid paying more taxes than you actually owe. Contact the manufacturer of the particular tax preparation software you use if you need assistance.
Special notes for those who:
live outside PA. While SERS payments are exempt from PA state and local taxes, they may be subject to state and local income taxes where you live. If so, you will be required to file Copy 2 of your 1099-R form with your state and/or local tax office. Contact your state and local tax offices, or a qualified tax professional for more information. If you live outside the United States, you are responsible for learning about and adhering to any income tax obligations you may have to non-U.S. taxing authorities.
receive SERS disability retirement payments. Generally, when filing your federal income tax return, you must report the taxable portion of your disability retirement payments as “wages” on IRS forms 1040 or 1040-A until you reach the retirement system’s normal retirement age. See IRS Publication 575, Pension and Annuity Income for more information.
are not U.S. citizens. If you are not a U.S. citizen (including resident alien) you should receive an IRS 1042-S form instead of a 1099-R. Please contact SERS at 1-800-633-5461 if you receive a 1099-R in error.
Contributions not subject to federal income tax can include:
“Pre-87 after-tax contributions,” if you did not withdraw them in a lump sum at retirement, are previously taxed payroll contributions made toward your pension prior to January 1, 1982 as well as payments to purchase service credit made prior to January 1, 1987.
“Post-86 after-tax contributions” are payments to purchase service credit made on or after January 1, 1987.
See IRS Publication 575 to learn how contributions you paid tax on can be returned to you without being taxed again. Until all non-taxable money is returned to you, a portion of your benefit is paid to you tax-free each year. After all of your after-tax contributions are returned to you, your gross distribution and your taxable amounts will be the same.