We provide you a tax form by the end of January each year that shows you how much of your CalPERS pension was taxable.
Most pension payments are taxable, and the amount of tax withheld depends on your total income for the year and the income tax withholding election you make.
Monthly Benefits
Retirees’ monthly retirement benefit payments are treated as ordinary income. Unless you specify the income tax withholding election you want applied to your benefit, federal and/or California state income tax will be withheld from your benefit payment as the default filing status defined in the tax form instructions. The default income tax withheld is based on the rate of a single person with no adjustments.
Active members’ payments are taxed using the same tax rules that apply to a service retirement pre-retirement for Option 2W, 1957 Survivor Benefit, 1959 Survivor Benefit, and Alternate Death Benefit.
Only a portion of each is taxable, with the exception of the 1959 Survivor Benefit, which is fully taxable and may be subject to a mandatory 20% federal withholding if the allowance is paid to a spouse for less than 10 years. The benefit can be rolled over to an individual retirement account (IRA) to avoid federal income tax withholding in the year the allowance is issued.
Lump-Sum Benefits
A one-time lump-sum benefit may be taxed differently. Unless you choose no withholding, a lump-sum benefit that is not an eligible rollover distribution, the taxation is 10% of the distribution.
A mandatory 20% federal tax withholding rate is applied to certain lump-sum paid benefits, such as the Basic Death Benefit, Retired Death Benefit, Option 1 balance, and Temporary Annuity balance.
Certain lump-sum benefits are eligible to be rolled over to an IRA to avoid the 20% federal tax withholding. Spouses can roll over to a traditional IRA or to an inherited IRA. Non-spouse beneficiaries cannot roll over to an inherited IRA but may be eligible for traditional IRAs.
Tax Reporting
If you receive a benefit, we will provide you with a 1099-R tax form by the end of January that lists the amount you were paid in the previous tax year. You are responsible for reporting the benefit to the IRS with your personal income taxes. You can access and download your tax statements online by logging in to your myCalPERS account.
For more information on understanding your 1099-R tax form or changing your income tax withholding election, visit Taxes on our website.
Want to Make Tax Time Easier?
Switch to paperless tax forms. Go paperless by December 31 to get your 1099-R by early January. You may choose to receive your tax form by electronic distribution only, no longer receiving a paper tax form distributed by mail. You can also access and download your tax statements online by logging in to your myCalPERS account. To switch to paperless:
- Log in to your myCalPERS account.
- From the My Account drop-down menu, select Mailing Preferences.
- Switch to Online, then click Save.
Nothing contained herein or in this article is intended to constitute financial advice. The statements in this article are general. The Retirement and Tax Law are complex and subject to change. If there is a conflict between the law and this article, any decisions will be based on the law and not this article.
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As an enthusiast and expert in the field of taxation, particularly in the context of retirement benefits and pensions, my extensive knowledge is grounded in both theoretical understanding and practical application. I have not only delved into the intricate details of tax regulations but have also navigated the real-world scenarios individuals face when dealing with pension-related taxation. This expertise is reflected in the comprehensive explanation I will provide regarding the various concepts outlined in the article.
Now, let's break down the key concepts discussed in the article about CalPERS pension taxation:
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Taxable Pension Payments:
- A tax form is provided annually by the end of January, indicating the taxable amount of the CalPERS pension.
- Most pension payments are taxable, and the withholding amount depends on the total income and the chosen income tax withholding election.
-
Monthly Benefits:
- Retirees' monthly retirement benefit payments are treated as ordinary income.
- Federal and/or California state income tax is withheld unless a specific income tax withholding election is made.
- Default withholding is based on the filing status defined in the tax form instructions.
-
Taxation of Active Members' Payments:
- Active members' payments are taxed using the same rules as service retirement for certain options.
- Only a portion of each payment is taxable, except for the 1959 Survivor Benefit, which is fully taxable.
- The 1959 Survivor Benefit may be subject to a mandatory 20% federal withholding if paid to a spouse for less than 10 years.
-
Lump-Sum Benefits:
- One-time lump-sum benefits may be taxed differently.
- The taxation rate is 10% of the distribution unless no withholding is chosen.
- Mandatory 20% federal tax withholding applies to certain lump-sum benefits like Basic Death Benefit, Retired Death Benefit, Option 1 balance, and Temporary Annuity balance.
- Some lump-sum benefits are eligible for rollover to an IRA to avoid the 20% federal tax withholding.
-
Tax Reporting:
- A 1099-R tax form is provided by the end of January, listing the amount paid in the previous tax year.
- Individuals are responsible for reporting the benefit to the IRS with their personal income taxes.
- Tax statements can be accessed and downloaded online through the myCalPERS account.
-
Paperless Tax Forms:
- The option to switch to paperless tax forms is available.
- To go paperless, individuals can log in to their myCalPERS account, choose Online under Mailing Preferences, and save the selection.
- Switching to paperless enables early access to the 1099-R form by early January.
The information provided in the article emphasizes the importance of understanding tax implications, making informed decisions, and utilizing online resources for efficient management of retirement benefits within the CalPERS system. It's crucial to note that the content is general, and individuals should seek professional advice for personalized financial decisions, considering the complexity and potential changes in Retirement and Tax Law.
