Tax Considerations For Your Retirement Allowance


Since you made your contributions to the retirement fund on a tax-deferred basis, your ACERA pension allowance is subject to federal and state income tax (where applicable). If you made any part of your contributions using post-tax dollars (usually with a service credit purchase), a proportionate amount of your pension allowance is non-taxable.

Income Tax Withholding

As a part of the retirement application process, you specified how much federal and California state income tax to withhold from your retirement allowance check (California is the only state income tax we can withhold). You can update your withholding at any time using the processes below. Withholding changes made by the 10th of the month will be effective on your next monthly retirement allowance. Be sure to read the withholding form’s instructions carefully, and consult your tax advisor if you have questions.

How to Update Your Federal Income Tax Withholding

  1. Use the IRS Tax Withholding Estimator to calculate your withholding. It works really well.
  2. Log in to your ACERA online account and use the web form for federal withholding.
Withholding Flat Amounts

Due to IRS rules, ACERA does not allow you to withhold a flat amount with no allowances. This means you MUST enter a number in the Allowances Box (Box 2).

A workaround for this is to enter additional allowances in Box 2 until your withholding is below the flat amount that you’re looking for, and then add an Additional Amount in Box 3 to bring your withholding up to the flat amount you’re looking for. Be careful, because you may end up owing taxes (and possibly penalties) if ACERA doesn’t withhold enough. You can submit multiple withholding forms to ACERA until your withholding is adjusted to your needs.

How to Update Your California 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.

  1. Use the withholding form worksheet to calculate your withholding.
  2. Log in to your ACERA online account and use the web form for state withholding.

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. Your 1099-R becomes available in your online account in mid to late January. We also mail the 1099-R 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. 

If You Need a Duplicate 1099-R

Log in to your online account to access all of your past 1099-Rs. Or you may contact us to request us to mail a copy to your current address. ACERA cannot fax or e-mail this form to you.

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.