Generally, all payments from SERS are subject to federal income tax. However, under the Retirement Code, SERS benefits are totally exempt from Pennsylvania state and local income taxes for residents living in Pennsylvania.
At your direction, SERS can withhold money from your monthly annuity payments for federal income tax and you can change the amount of federal withholding at any time. Each January, SERS will send you an IRS Form 1099-R for your use in filing your federal income tax return.
In addition, members retiring or terminating service prior to attaining age 55 (or age 50 for qualified public safety employees as defined by the IRS) may be subject to a 10 percent federal excise tax on lump sum payments not rolled into a traditional IRA or other eligible plan.
If you receive a payout for unused leave when you retire or terminate state service, you will owe income tax on that payout. You may be able to defer some of the income tax owed on that money until a later date by rolling the payout into the Commonwealth’s Deferred Compensation Program (DCP).
Retiring members also should be aware that the IRS can levy SERS retirement benefits for delinquent payment of taxes.
Additional Helpful Links:
Social Security Taxability
Out-of-State Tax Links