Your monthly benefit is reported to the IRS as income, and you are responsible for paying any taxes. You will receive a Form 1099-R annually for tax reporting purposes. If you made contributions to your pension after-tax, such as with a service purchase, the non-taxable portion of your pension paid throughout the year will be reported on your 1099-R form in Box 5. You will complete an Income Tax Withholding form when you apply for retirement to indicate how much federal income tax you want withheld.
WRS through Northern Trust's Benefit Payment Services Division can now withhold State income tax. If you have a question about your state’s income tax please consult with a tax advisor. There is also helpful information (here) State Tax Withholding Regulation publication.
IRS Form 1099-R
WRS mails 1099-R forms by January 31 of each year. Retirees who haven’t received their 1099-R form by the middle of February should call WRS to request a duplicate. If you've changed your address recently, update your address with WRS before mid-January to receive your 1099-R form by mail. You can change your address in the Online Pension Account or by completing a change of information form.
1099-R forms are also posted to your Online Pension Account in late January.
Many members receive only one 1099-R, but there are instances where multiple forms are generated:
- Turning 59½ during the past year. The pre-59½ payments are coded “2” (early distribution) and the post-59½ payments are coded “7” (regular distribution).
- Receiving two distributions from a plan, perhaps as both a survivor beneficiary and as a retiree.
- Receiving distributions from two different plans (i.e. law enforcement turned teacher, retired from both plans).
- Multiple refunds with different tax consequences (portion rolled over to a qualified plan like a 401k or 457, part taken directly).
- You may also receive a separate 1099-R associated with any 457 Plan distributions you may have taken.
When filing your taxes, you'll need to add the appropriate figures from separate 1099-R forms together.
How to Read Your 1099-R
Box 1 - Gross distribution
Benefits WRS paid to you in the tax year.
Box 2a - Taxable amount
Total taxable amount of your gross distribution.
Box 4 - Federal income tax withheld
Total amount of federal income tax withheld in the tax year.
Box 5 - Employee contributions/Designated Roth contributions or insurance premiums
The amount shown in box 5 is not a deduction. The figure in box 5 represents the nontaxable portion of a retiree’s gross earnings during the tax year.
If a retiree adds the amount in box 5 to the amount in box 2a, which is the taxable amount, the sum is equal to box 1, the gross distribution.
A portion of a retiree’s gross distribution may be nontaxable if some of the contributions paid into their retirement account while they were an active employee were taxed at the time they were contributed. Retirees may have zero listed in box 5 if they were not taxed on any of the contributions made into their retirement account. They may also have zero listed in box 5 if the balance of the nontaxable portion of their contributions has already been paid out to them over the course of their retirement.