This information applies to LACERA retirees, survivors, and beneficiaries who are U.S. citizens or resident aliens (green card holders) and live in the United States.
In January, LACERA will send you a copy of the Form 1099-R it submits to the IRS, indicating the taxable amount of the benefit paid to you in the previous year. Copies of your 1099-R are also available on My LACERA.
Taxability of Monthly Allowances
Retirement allowances are considered taxable income under both federal and State of California income tax laws.
Payment of your income tax is your responsibility. Withholding is one way for you to pay a portion of your tax. If no tax or not enough tax is withheld from your benefits, you may have to pay estimated taxes during the year or pay a tax penalty at the end of the year.
- Federal Tax Withholding
- LACERA must withhold federal taxes from your monthly retirement allowance unless you elect to have no withholding.
- State Tax Withholding: California Residents
- LACERA must withhold California state taxes from your monthly retirement allowance unless you elect to have no withholding.
- State Tax Withholding: Non-California Residents
- Your LACERA retirement income may be taxable in your state; state tax requirements differ. However, the source tax law protects you from paying state taxes in two states on the same retirement income.
- In compliance with federal law, California income tax is not withheld if your primary residence is outside California. However, if you are receiving other income from California you may still be subject to state tax and you may elect to have LACERA withhold taxes from your allowance to satisfy your other California obligations.
Information on the taxability of payments from qualified employer plans such as LACERA’s is available in the publication linked below, your local IRS office, or by calling 800-TAX-FORMS.
Changing Your Tax Withholding
You have the option to change your tax withholding election at any time. Your original withholding choice will remain in effect until you file a new IRS W-4P form or California DE-4P tax withholding election form with LACERA.
The quickest and easiest way to adjust and submit your tax withholding election is on My LACERA. Or you can print a W-4P/DE-4P form, complete and sign it, and mail it to LACERA. Your new tax withholding will be reflected on the check that is issued at least 30 days after we receive your form.
Note: The IRS has updated the W-4P form for 2022, but LACERA will not switch to the new form until 2023. Please continue to use the 2021 form linked above until further notice. (Do not submit a 2022 version of the form or your withholding change will be rejected.) For more information, see this Q&A sheet about the changes.
LACERA will remind you about your option to adjust your tax withholding annually through our Spotlight newsletter and on your January check.
Your decision on withholding tax is an important one. For questions regarding tax matters, consult with a professional advisor; LACERA does not offer tax or legal advice.
Taxability of Lump-Sum Payments
Lump-sum payments are subject to 20 percent federal income tax withholding and an additional 2 percent in state tax if you reside in California. However, if you are under age 72, a portion or all of the benefit is usually eligible for a tax-deferred rollover to a traditional Individual Retirement Account (IRA) or eligible employer plan. (A rollover is a payment by you or LACERA of your Benefit Payment to an IRA or other plan that allows you to postpone taxation of that benefit until it is paid to you.)
- For more information on rollovers, see this Special Tax Notice
Information on IRA contributions and distributions is available in the publications linked below, your local IRS office, or by calling 800-TAX-FORMS.
- IRS Publication 590-A: Contributions to Individual Retirement Arrangements (IRAs)
- IRS Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs)
A member’s retirement allowance is generally not subject to garnishment or other levies except to satisfy a judgment for spousal or child support or a division of community property, or a tax levy by the IRS or the California Franchise Tax Board for payment of delinquent federal or state income tax.