Income Tax Withholding
|
|
In 2023 the IRS released a revised Form W-4P (Withholding Certificate for Periodic Pension or Annuity Payments) that includes changes to the federal tax withholding elections available. Minimum withholding is no longer calculated and the standard election on your NC Retirement Systems account (Single or Married Filing Separately, Married Filing Jointly or Qualifying Widow(er), Head of Household) applies if you have elected for federal income tax to be withheld from your monthly retirement benefit.
If you previously chose to have a minimum withholding from your benefit payment, you should log in to your ORBIT account and update your tax withholding preferences in Step 4 (c) (Additional Withholding Amount per pay period).
You may update your tax withholding preferences in your ORBIT account. We also have forms and guides available. Click here for more information about Choosing Your Tax Withholding Preferences.
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.
Use ORBIT to access your 1099 or W-2 tax forms. Paper versions of these documents will be mailed out to the address we have on file for you by January 31. Please allow 7-10 business days to receive the form by mail.
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.
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 also change your election online at any time during the year by logging into your personal, secure ORBIT account and following the instructions to change your tax withholding. An election or revocation received by the 10th of the month will be effective that month. If a change is 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, you will make your tax withholding elections as a part of the process.
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.
Minimum Tax Withholding
As of Jan. 1, 2023, the Minimum Tax Withholding no longer applies. If you would like additional withholding from your monthly benefit payment, you will need to log in to ORBIT and make changes in Other Adjustments.
Click here for IRS tax withholding concepts
Choosing Income Tax Withholding Preferences
To change your withholding, complete the following steps:
- 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.
- Once logged in, click on the tab “Maintain Tax Withholding Election” tile on the Retiree “Welcome” screen (see example below).
- Click on the link “Change your current tax withholding for this account?” near the bottom of the page.
- Enter the changes you would like to make and click “Save.”
- If you are in the process of applying for benefits, and using the Retirement application, you will be making your tax withholding elections as a part of the process.
Frequently Asked Questions about Income Tax and 1099 Forms
No. Due to confidential information provided on your 1099R, we will not fax/email tax documents.
1099R’s will be mailed out each year by January 31 to the address we have on file.
Yes. You can download your 1099R 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.
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 |
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.
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.
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
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