ORBIT

Income Tax Withholding

Tax season is coming. Here's what you need to know

Each year it's important to log in to your ORBIT account to review and make any beneficiary and tax withholding changes that you deem necessary. This year it's especially important to review your tax withholding preferences. Read on to find out what you need to know to wrap up 2018 and prepare for the year ahead.

Use ORBIT to access your 1099 or W-2 tax forms as early as January 18, 2019. Otherwise, paper versions of these documents will be mailed out to the address we have on file for you by Thursday, January 31, 2019. If you decide to wait for your paper tax form, please be sure to allow 7-10 business days to receive the form by mail.

Tax withholding defaults and rates are changing in 2019. Please update your preferences.

State Taxes: Unless you specify a monthly withholding rate or amount for state taxes, your pension account will default to the rate of "single" with zero allowances. This means that more money may be deducted from your benefit payment each month if you do not log in to ORBIT and designate your withholding preferences. If you have already designated a withholding preference or are exempt from paying state taxes, no action is required.

Federal Taxes: Unless you specify a monthly withholding rate or amount for federal taxes, your pension account will default to the rate of "married" with three allowances. If you have already designated a withholding preference, no action is required.

The IRS is recommending that retirees conduct a "paycheck checkup" to make sure they are paying enough tax during the year by using the withholding calculator located on the IRS website. Though primarily designed for employees who receive wages, this online tool can also help those who receive pension and annuity payments on a regular schedule.

Minimum Tax Withholding

​You may elect to have federal and/or North Carolina income tax withheld or not withheld from your retirement benefit.

Your election will remain in effect until you revoke it. You may change your election at any time during the year by completing a Form 290 (Choosing Income Tax Withholding Preferences). You may also change your election online by logging into your personal ORBIT account and following the insructions to change your tax withholding. An election or revocation received by the 10th of the month will be effective that month. If not received by the 10th, it will likely be effective the next month. If you are in the process of retiring and using our online retirement application, as part of the process you will make your tax withholding elections.

Still having trouble understanding what tax withholdings are and how to determine your filing status? The IRS explains tax withholding concepts further on their website.

       Click here for IRS tax withholding concepts

 

Choosing Income Tax Withholding Preferences

To change your withholding, complete the following steps:

  1. Login to ORBIT. If you have not used ORBIT before, you will need to register by clicking on the Register button on the same page.  To complete the registration, you need to supply your Social Security number, birth date, and the net pay from your most recent benefit payment.
  2. Once logged in, click on the tab “Maintain Tax Withholding Election” tile on the Retiree “Welcome” screen (see example below).
  3. Click on the link “Change your current tax withholding for this account?” near the bottom of the page.
  4. Enter the changes you would like to make and click “Save.”
  5. If you are in the process of applying for benefits, you will need to complete a paper copy of Form 290 and submit it to the Retirement System by mail or fax.

       Click here for Form 290

If you are in the process of retiring and using our Online Retirement application, as part of the process you will be making your tax withholding elections.

Frequently Asked Questions about Income Tax and 1099 Forms

Can my 1099R be faxed or emailed?

Can my 1099R be faxed or emailed?

​No. Due to confidential information provided on your 1099R, we will not fax/email tax documents.

I did not receive my 1099R, how can I request a duplicate copy?

I did not receive my 1099R, how can I request a duplicate copy?

On or after February 2, 2018, you can request a duplicate copy of your 1099R through our automated voice response system. You can also send a request via email at NCRetirement@nctreasurer.com and the 1099R will be sent out within 48 hours to the address we have on file.

When can I expect to receive my 1099R?

When can I expect to receive my 1099R?

1099R’s will be mailed out each year by January 31 to the address we have on file.

Can I download my 1099R?

Can I download my 1099R?

Yes. You can download your 1099R NOW by logging into your ORBIT account.  

If you have not set up your ORBIT account, you can do so by going to the ORBIT website and following the instructions on how to register. If you encounter problems while trying to register in ORBIT, click on the Help & Resources link at the top of the page. We have added How To videos and step-by-step guides to help members with ORBIT registration.

How do you determine the portion of my retirement benefit subject to federal income tax?

How do you determine the portion of my retirement benefit subject to federal income tax?

Although you will not be subject to federal income taxes again on any contributions for which you have already paid tax, you may exclude only a small portion of your previously taxed contributions each month throughout a time period specified by the federal government. The total amount of your contributions for which you have already paid federal tax is referred to as your “federal tax base.”
 
The Retirement Systems Division computes the non-taxable portion of your monthly benefit by using the Internal Revenue Service’s “Simplified General Rule.” Under this method, your “federal tax base” is divided by a specified number, based on your option and your age at retirement, to determine the non-taxable amount of your monthly benefit.

The tables below are used to determine the portion of your monthly benefit that is not taxable. Table 1 is used for the Maximum Allowance or Option 4; Table 2 is used for Option 2, 3, 6-2, or 6-3. Based on your age at retirement for Table 1 or for your and your beneficiary’s combined age for Table 2, determine the number of expected payments in column two opposite your age bracket. Divide the number of expected payments into your “federal tax base.” The result is the amount of your monthly benefit that is not taxable.

FOR EXAMPLE — Maximum Allowance and Option 4:
If your “federal tax base” is $13,950 and your age at retirement is 60, divide $13,950 by 310 to obtain your non-taxable figure of $45 per month. Therefore, regardless of the post-retirement increases you may receive in the future, $45 of your monthly benefit would be exempt from federal income tax for 310 months. The amount of your monthly benefit in excess of $45 would be subject to federal income tax, and after 310 months your total monthly benefit would be subject to federal income tax.

Table 1 - For Maximum Allowance and Option 4
Your Age
At Retirement
Number of Expected Payments
to be Divided into Your Federal
Tax Base
55 and under 360
over 55 to 60 310
over 60 to 65 260
over 65 to 70 210
over 70 160

FOR EXAMPLE — Options 2, 3, 6-2, and 6-3:
If your “federal tax base” is $13,950 and your age at retirement is 56 and your spouse’s age is 63 (combined age of 119), divide $13,950 by 360 to obtain your non-taxable figure of $38.75 per month. Therefore regardless of the post-retirement increases you may receive in the future, $38.75 of your monthly benefit would be exempt from federal income tax for 360 months. If you fail to live 360 months, the beneficiary to whom you have left a monthly benefit, can claim the $38.75 monthly exclusion for the balance of the 360 months. The amount of your or your survivor’s monthly benefit in excess of $38.75 would be subject to federal income tax, and after 360 months your total monthly benefit would be subject to federal income tax.

The illustrations on this page are only examples. Your non-taxable amount will be based on your age and the age of your survivor, if applicable, at retirement and the amount of your “federal tax base.” 

Table 2 - For Options 2, 3, 6-2 and 6-3
Combined Age
at Retirement
Number of Expected Payments
to be Divided Into Your
Federal Tax Base
110 and under 410
over 110 to 120 360
over 120 to 130 310
over 130 to 140 260
over 140 210

 

 

 

Is my retirement benefit subject to North Carolina income tax?

Is my retirement benefit subject to North Carolina income tax?

If you have 5 or more years of maintained retirement service credit in TSERS as of August 12, 1989, your monthly TSERS retirement benefits are Bailey Class exempt. LGERS retirees who have 5 or more years of maintained retirement service credit in LGERS as of August 12, 1989, are also Bailey Class exempt. This means your retirement benefit is not subject to North Carolina income tax. 

If you do not have 5 years of maintained retirement service credit as of August 12, 1989, the taxable portion of your retirement benefit is subject to North Carolina income tax. If you are not a resident of North Carolina, you may not owe North Carolina income tax on your retirement benefit. However, you may owe state income tax in the state where you live. Contact your tax advisor, the North Carolina Department of Revenue, or the Department of Revenue in your resident state for information relative to your situation. NC Retirement Systems can withhold only North Carolina income tax. We cannot withhold any other state’s income tax from your monthly benefit.

Should I report my retirement benefits on my federal and NC tax returns?

Should I report my retirement benefits on my federal and NC tax returns?

Yes, you should report your retirement benefits on your federal and North Carolina tax returns regardless of whether you owe any income tax. After you retire, each year by January 31 we will send you Form 1099-R, which is similar to Form W-2 (Statement of Income and Tax Withheld), which you received annually while you were employed. The 1099-R shows the amount of your retirement benefits, the taxable portion (if any) of those benefits, the amount of tax withheld (if any), and other related information. We also send copies to the Internal Revenue Service and the North Carolina Department of Revenue.

What portion of my retirement benefit is subject to income tax?

What portion of my retirement benefit is subject to income tax?

​You will be subject to federal income tax on the portion of your retirement benefit which has not been previously taxed, including:

  • contributions you made on or after July 1, 1982, for TSERS members (for LGERS members, after the date your employer adopted a tax sheltering resolution, if they have done so)
  • rollover service purchases
  • all benefits paid from the employer contributions and investment earnings
What portion of my retirement benefit is not subject to income tax?

What portion of my retirement benefit is not subject to income tax?

You will not be subject to federal income tax on the portion of your retirement benefit for which you have already paid tax, including:

  • contributions you made before July 1, 1982, for TSERS members (for LGERS members, before the date your employer adopted a tax sheltering resolution, if they have done so)
  • any non-rollover service purchases you made
Block 5 on my income tax form 1099-R, which I received from the Retirement System, includes an amount described as "Non-Taxable amount." What does this mean?

Block 5 on my income tax form 1099-R, which I received from the Retirement System, includes an amount described as "Non-Taxable amount." What does this mean?

The amount shown in Block 5 of a 1099-R issued by the Department of State Treasurer is the amount of retirement contributions paid by you that is not taxable.