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Taxes
on PERA Benefits
All PERA benefits are subject to
federal income tax. The entire benefit is taxable for members who joined PERA on
or after July 1, 1984, and did not purchase any service credit with tax-paid funds.
Contributions to PERA prior to July 1, 1984, and on any money used to
purchase service credit that was not tax-deferred will not be taxed when they are paid as
part of a retirement benefit because they were already taxed.
PERA uses the Internal Revenue Service's "Simplified
Method" to calculate the tax-free portion of a benefit. This calculation offers most
retirees the advantage of receiving a greater portion of the benefit as
"tax-free" in earlier years. For more about the "Simplified
Method," contact the IRS for a copy of Publication 575, Pension and
Annuity Income. Please review the
Taxes on PERA Benefits brochure
for detailed information.
For more information, contact the IRS via their Web site at
www.irs.gov or by telephone at
1-800-829-1040.
Disability Retirement
If a retiree receives a disability retirement benefit, the entire
benefit is taxable until the retiree reaches "minimum retirement age." PERA uses
the age at which a member would first be eligible for reduced service retirement as
"minimum retirement age." For most disability retirees, service credit is
projected to 20 years, thus minimum retirement age is 55. If a member made contributions
to PERA prior to July 1, 1984, the "Simplified Method" calculation
for determining the tax-free portion of his or her benefit becomes effective at the
retiree's "minimum retirement age."
A retiree who is under age 65 and totally disabled may be eligible for a
special federal income tax credit. Contact the IRS and get a copy of Schedule R and
Publication 524, Credit for the Elderly or the Disabled.
Survivor Benefits
For a surviving spouse who receives a benefit, PERA calculates the
tax-free portion of the benefit, if any, using the "Simplified Method" for
cost recovery. For a child's survivor benefit, PERA reports the entire benefit as taxable.
Survivors of members who made tax-paid contributions to PERA should consult with their tax
advisor about using the IRS's "General Rule" for cost recovery.
Surviving spouses and qualified children
who receive survivor benefits based upon the death of a state trooper
who was killed in the line of duty may be exempt from federal income
tax. Contact a tax adviser or the IRS for more information about
qualification for tax exemption under section 101(h) of the Internal
Revenue Code.
Colorado Income Tax
PERA can withhold Colorado state income tax if requested. PERA does not
withhold taxes for any other state. Colorado law excludes from Colorado state income tax total pension income up to $20,000 per year per person for those retirees age 55 through 64, or $24,000 for those retirees age 65 and
over.
Pension income includes PERA benefits, Social Security payments, certain other retirement
pensions, and distributions from Individual Retirement Accounts and tax-deferred savings
plans such as PERA’s 401(k) Plan, 403(b) tax-sheltered annuities, and 457 deferred
compensation plans. Persons receiving a PERA survivor benefit, regardless of age, also
qualify for the pension exclusion.
PERA sends information and forms on federal and state income tax
withholding to members applying for retirement.
For more information, contact the Colorado Department of Revenue via
their Web site at
www.taxcolorado.com or by telephone at 303-238-7378.
1099-Rs
Each January, PERA mails 1099-Rs to those individuals receiving a PERA
benefit. Our Understanding Your 1099-R overview can help you to better
understand the information on your 1099-R.
Changing Your Tax Withholding
If you need to change the federal or state withholding amounts deducted
from your monthly benefit, you can complete a
Withholding Preference Form
(located in the Taxes on PERA Benefits brochure) or if you have a PERA PIN,
you may complete the
Withholding Preference Form online.
View,
print or
order the
Taxes on
PERA Benefits brochure for additional information.
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