While MCERA can provide you with information on some tax laws you need to be aware of, you may wish to consult with the Internal Revenue Service, California State Franchise Tax Board, or your tax advisor regarding the taxability of your retirement benefit and what amount of taxes you may wish to withhold from your monthly payment.
Tax Withholding Election
Your tax withholding election provides MCERA with instructions on how you would like us to withhold taxes from your monthly benefit payments. You may change your tax election at any time by completing new Federal and/or California State tax withholding forms and returning them to MCERA.
MCERA retirees whose benefits are taxable have the following withholding choices.
- To have no taxes withheld.
- To have taxes withheld according to the tax tables, based on marital status and number of allowances.
- To have a specific dollar amount withheld (California only).
- To have an additional specific dollar amount withheld (Federal and California).
State Tax Considerations
Since federal legislation prohibits states from taxing the pension income of non-residents, if you reside outside the state, California state taxes will not be withheld from your MCERA benefit without your authorization. While your MCERA benefit is still a California source income, there is no California source tax for qualified non-residents.
If you live outside of California MCERA is not able to withhold state taxes for you.
1099-R Annual Tax Reporting Statement
MCERA is required to issue a 1099-R for all distributions and retirement payments including payments for refunds, disability retirements, service retirements, continuances, death benefits and domestic relations orders. Each January you will receive a 1099-R form containing information on your MCERA income from the previous calendar year. A separate form is issued for each individual record. For example, if you are a retiree and you also receive a continuance from a deceased retiree, you will receive two 1099-R statements.
Box 1 on the 1099-R form labeled "Gross Distribution" contains the total amount of benefits paid to you. This is normally the accumulated annual gross amount of the payments you received dated January 1 through December 31. Box 2a labeled "Taxable Amount" contains the amount of your gross payments that is taxable income. This is the amount that you will report as income on your personal income tax return.
Please contact us if you need a copy of a past 1099-R form.
For service connected disability, the amount of your retirement benefit equal to 50% of your highest average compensation is not subject to taxation.
Non-service connected disability retirement benefits are taxable.