Tax information

Tax on retirement benefit

When you retired, you completed a form giving instructions to SDCERA regarding if and how you want income tax withheld from your retirement payments. You may elect to have or not to have federal and/or California state tax withheld at any rate you choose. SDCERA does not withhold income tax for states other than California.

SDCERA will send you a 1099-R tax statement each year in late January.  The 1099-R contains detailed information regarding your retirement income from the previous year, and is necessary to complete your federal and state tax returns.

You may change your tax withholding at any time. Use the Tax Election for Monthly Pension form if you would like to change your tax election.

Tax exclusion

Most of your monthly retirement benefit is taxable. The retirement contributions you made after January 1, 1997, all interest earnings and all of the county’s contributions which you receive in the form of a monthly pension during retirement are taxable.

The retirement contributions you made prior to 1997, however, were made on an after-tax basis. This portion of your retirement will not be taxed.

The Internal Revenue Service allows you to recover this amount on a nontaxable basis, but not all at once. The nontaxable amount of your monthly benefit is reflected on your monthly retiree earnings statement as Basic Allowance Non-Taxable. This calculation of the nontaxable amount is effective with the start date of your benefit payment and remains constant, even though your monthly payment may increase due to cost-of-living adjustments. Your tax-free exclusion ends when you have received the total amount of your after-tax employee contributions shown in the above worksheet. Then, the entire retirement benefit will be fully taxable. Please note that the calculation factors above are taken from federal tax laws, which are subject to change. *If you don’t have an estimate either from a retirement meeting or individual request, you can request your after-tax contributions in writing. Send your request to SDCERA, attention: Operations and allow 2-3 days for a written response.

The IRS has determined the methodology to calculate how much of each monthly retirement payment is nontaxable. Use the Tax Exclusion Worksheet to help you make that determination.

Maximum benefits

If you earn higher wages, your retirement benefit may be affected by Internal Revenue Code (IRC) limits. The IRC limits both the amount of annual compensation that may be used to calculate your retirement benefit and the amount of retirement benefits you may receive each year.

Section 401(a)(17) of the IRC limits the amount of compensation that may be used to calculate your benefits. For 2009, the annual compensation limit is $245,000. Section 415(b) of the IRC limits the amount of retirement benefits you can receive from a qualified retirement plan, such as SDCERA. This IRC cap on the annual maximum retirement payment may reduce the annual retirement benefits you receive from SDCERA. However, in order to avoid any impact to its employees, the County Board of Supervisors adopted a supplemental plan (known as the Excess Benefit Plan) that will make up the difference in retirement pay for any retiring County employee who is impacted by the IRC Section 415(b) limitation. For more information and current Internal Revenue Code limits, see 2009 Internal Revenue Code Benefit Limits.