Subject to some limited exceptions discussed below, your retirement benefit is taxable and subject to Federal and State income tax laws. You may choose to have no taxes withheld from your retirement benefit. However, you may then owe taxes to the Federal and State taxing authorities. FCERA staff is not qualified to provide tax assistance. The tax laws are extremely complex and vary among the states. States have various rules regarding withholding. For example, some states require state withholding when federal withholding is elected, others do not. There are additional tax requirements for retirees living in foreign countries.
FCERA can only accept one set of withholding instructions per person (one federal and one state) even if you are receiving more than one benefit, for example as both a member and a beneficiary continuance. Where the tax election includes a flat amount, the withholding will be applied to each benefit based on a ratio of the taxable benefit in each benefit calculation. Questions about the tax status of your retirement benefit should be addressed to your tax adviser and/or the appropriate taxing agency.
If you made contributions to the plan prior to July 1, 1985, your contributions were made on an after-tax basis. Also, you may have purchased additional service credit on an after-tax basis. Because those contributions were already taxed, you were given a letter at retirement explaining the portion of your monthly retirement benefit that was not subject to income taxes and the time period that this tax-free portion will continue. This “credit” will be reflected on the annual Form 1099R statement you receive for tax filing purposes each January. You should retain the documents that you received at retirement to assist you with your income tax filing.