Note: On this page, SamCERA is providing certain tax information to you but is not providing tax advice. For questions regarding tax or legal matters, consult with a professional advisor; SamCERA does not offer tax or legal advice.
Your monthly retirement benefit is taxable. Before you retired, your contributions to SamCERA were deducted from your gross pay before income taxes were determined, so benefits provided by these contributions are taxable. There are two exceptions: any benefits funded by after-tax member contributions, and benefits based on a service-connected disability.
When you retire, you need to give SamCERA a completed withholding form. SamCERA is required by law to withhold state and federal tax at the “married with 3 exemptions” rate if you do NOT have a form on file declaring your choice of withholding.
State Income Tax Withholding: SamCERA only withholds state income taxes for California. SamCERA does NOT withhold state income tax for any other state.
If you do not elect to withhold federal or state income tax from your retirement benefit, or if you do not withhold enough tax: you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your payments are not sufficient to cover your tax liability.
To check the amount that SamCERA is currently withholding: for federal and state taxes, just log into MySamCERA and click on the “My Deductions” tab. For a record of last year’s withholdings, you can view or print a copy of your 1099-R under the “My 1099s” tab in MySamCERA.
To change your withholding information: for either federal or state taxes, use the Tax Withholding Form (available on the Member Forms page.)
Tax Reporting: Your IRS 1099-R
Each year at the end of January, SamCERA sends retirees an IRS 1099-R Form. (This replaces the W-2 form you received while you were an active employee.) This form will list your reportable income and taxable income. It will also reflect the amount of federal and California taxes that have been withheld.
You can also view and print your 1099-R. It’s easy: just log into MySamCERA and click “My 1099s.”
For Members Receiving Disability Retirement Benefits
Non-Service-Connected Disability: If you receive a non-service-connected disability, your benefits are taxable. You will receive a 1099-R reflecting this information.
Service-Connected Disability: If you are receiving a service-connected disability, depending on the difference between the amount of your service-connected disability retirement benefit and your Final Average Compensation (“FAC”) at the time of retirement, some or all of it may be nontaxable.
- Federal tax law provides that an amount equal to 50% of your FAC at the time of retirement may be excludable from your gross income for federal tax purposes (fully non-taxable). That amount of your service-connected disability payment is non-taxable and the amount of any COLA adjustment attributable to that amount is excludable. (Upon your death, your surviving spouse or minor child will be eligible for this tax exclusion if he or she is eligible to receive a continuing allowance from SamCERA.) If your service-connected disability is equal to or less than 50% of your FAC, you will not receive a 1099-R unless you have tax withheld.
- Any portion of your allowance that exceeds 50% of your FAC at the time of retirement is subject to taxation. SamCERA will identify the “Taxable Amount” of your service-connected disability retirement benefit and report it in box 2a on Form 1099-R. A copy of your 1099-R is mailed to you at the end of each January. The taxable amount of your disability benefit is also displayed in the “Total Taxable YTD” category on your check stub or automatic deposit receipt (ADR).
Note: For questions regarding tax or legal matters, consult with a professional advisor; SamCERA does not offer tax or legal advice.
Tax Implications of Your Post-Tax Contributions
The portion of your benefit derived from your post-tax contributions is not taxable. SamCERA tracks all pre-tax and post-tax contributions throughout your career. Any post-tax contributions will result in a non-taxable income, effectively lowering the taxable income. The post-tax contribution is amortized through tax reductions over an extended number of years in retirement according to IRS regulations. The following are examples of post-tax contributions:
- Contributions before February 5, 1989. Member contributions made before February 5, 1989, were made on an after-tax basis. These contributions are not taxed when disbursed, but the interest credited to those contributions is taxable.
- Purchase of service credit or redeposits made with after-tax funds. Purchases of Service or redeposits of contributions (lump-sum payment via personal check or installment payments) made with after-tax monies are also not taxed when disbursed, but the interest credited to those contributions is taxable.
For Former Public Safety Officers
There is an IRS tax benefit for eligible retired Public Safety Officers. Under the Pension Protection Act of 2006 (PPA), eligible retired public safety officers (PSO) are permitted to exclude up to $3,000 of distributions from their SamCERA retirement plan for direct payment of health care premiums. Eligibility for this Internal Revenue Service (IRS) tax benefit hinges on several requirements, and it is the responsibility of each member to substantiate his/her PSO eligibility. Contact your tax advisor for more information.