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Tax Considerations For Your Retirement Allowance

Your ACERA retirement allowance may be subject to federal and state income tax.

Federal Income Tax Withholding

As a part of the retirement application process, you completed IRS Form W-4P Withholding Certificate for Pension Annuity Payments. This is the form that tells ACERA how much federal income tax to withhold from your retirement allowance check. You can update your withholding after benefit payments begin at any time by completing a new IRS Form W-4P. However, in order for your withholding change to be effective on your next monthly retirement allowance, ACERA must receive the form by the 10th of the month. Be sure to read the form’s instructions carefully, and consult your tax advisor if you have questions. For tips on filling out the federal withholding form, check out our flyer Helpful Hints: Federal Tax Withholding Form and Your Pension Check.

State Income Tax Withholding

The only state income tax ACERA can withhold is California’s. If you live in another state that collects state income tax, you are responsible for filing and paying your taxes with your state of residence.

If you had planned to live in California after retirement, as a part of the retirement application process, you completed California’s Tax Withholding Designation Form – Withholding Certificate for Pension or Annuity Payments. This is the form that tells ACERA how much California state income tax to withhold from your retirement allowance check. You can update your withholding after benefit payments begin at any time by completing a new Withholding Certificate form. However, in order for your withholding change to be effective on your next monthly retirement allowance, ACERA must receive the form by the 10th of the month. Be sure to read the form’s instructions carefully, and consult your tax advisor if you have questions.

ACERA Reports Your Retirement Income on Form 1099-R

Each year, federal law requires ACERA to report income to its payees with Form 1099-R, regardless of their taxable status. This includes payees on duty disability for whom there may be no tax liability whatsoever. We mail the form to payees on or before January 31.

Payees may also receive multiple 1099-R forms for payments resulting from a member’s death or if benefit adjustments are paid during the same tax year. Note that:

  • ACERA cannot fax or e-mail this form to you. If you need a duplicate form, contact ACERA Member Services to request a copy. ACERA will mail a copy to your current address.
  • ACERA cannot discuss specific personal information with you over the phone. You need to submit inquiries to ACERA Member Services in writing.

Taxation if You Live Outside the United States

If you are considering moving out of the United States and want to avoid the possibility of 30% taxation on your pension, you must make sure you have the following documents on file with ACERA.

  • U.S. Certified Birth Certificate; verifying you were born in the United States, or submit a W-9 Form
  • If you are a Non-Resident Alien, a copy of your green card

A person who is not a U.S. Citizen or resident alien but will be residing at a non-U.S. address is subject to a mandatory federal tax withholding on a U.S. income source at the rate of 30%. The IRS requires these individuals to complete a W-8BEN Form and it must be submitted to ACERA. For non-citizens and non-resident aliens, a reduced tax rate including a total tax exemption may apply if there is a tax treaty between the non-U.S. resident’s country and the United States.

 

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