This information is provided as general assistance and is not intended to replace tax information provided by the Internal Revenue Service or a recipient's own tax advisor. Keep in mind that each financial situation is different and a benefit recipient may want to consult a tax advisor about his or her specific needs.
If your employer participated in a pick-up plan and none of your contributions were taxed at the time of deduction, the benefit will be completely taxable effective with the first payment at the tax rates in effect on that date.
If any of your contributions were previously taxed, OPERS will calculate the taxability of their monthly allowance and will report this amount to the IRS on Form 1099-R for each tax year. Each benefit payment is made up of two parts: a non-taxable amount that is a return of the member's retirement cost, and a taxable amount.
Retirement cost is defined as employee contributions on which federal income taxes have been paid. The non-taxable amount remains the same, even if the monthly benefit amount is increased. The accumulation of the non-taxable portion of the retirement benefit cannot exceed the retirement cost.
When the retirement cost has been recovered, the entire monthly benefit is taxable. The IRS guidelines for disability benefit recipients are somewhat different than those for age and service retirees.
OPERS also will withhold state of Ohio income tax from monthly benefit payments on a voluntary basis. If a recipient is required to pay state of Ohio taxes, he or she must determine the amount per month to have withheld from his or her benefit payment.
In order to make this determination, a recipient should estimate his or her state tax liability for the current year. Retirement credits available for state income tax should be taken into account when making any calculations. OPERS will begin withholding state tax from a benefit the month following the receipt of the properly completed form.
PERS benefits also are subject to local school district income taxes in Ohio. Members are responsible for these taxes if the local school district has an income tax, but OPERS cannot withhold the tax from the benefit payment.
Additional information about the tax treatment of benefit payments and/or disability payments may be found in the annual OPERS publication, Benefit Recipients' Income Tax Guide, which is published and mailed to benefit recipients each tax year in January.