Following is a brief outline of current tax laws as they apply to fund benefits. However, because tax laws often change, you should consult your tax advisor for more details.
After you retire, by January 31 each year, 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 working. The 1099-R shows the amount of your pension benefits, the taxable portion (if any), the amount of tax withheld (if any), and related information. Copies also will be sent to the Internal Revenue Service (IRS) and the North Carolina Department of Revenue. Therefore, you should report your pension benefits on your federal and North Carolina tax returns regardless of whether you owe any income tax.
Under federal law, the majority of every pension benefit is subject to being taxed. Although you will not pay 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 period of time specified by the federal government.
If you are a North Carolina resident and have maintained five or more years of pension fund service credit as of August 12, 1989, your monthly benefit paid by the pension fund is not subject to North Carolina income tax. If you do not have five years of maintained pension fund service credit as of August 12, 1989, the taxable portion of your monthly benefit is subject to North Carolina income tax.
The benefits paid to a beneficiary receiving a monthly line of duty survivor death benefit are also subject to the federal and North Carolina income tax provisions described above.
The monthly contributions paid by you and paid by others on your behalf into the pension fund have already been taxed. If you receive a refund of your pension fund contributions, it will not be subject to income tax. After your death, if a lump-sum payment of your contributions is paid to your beneficiary, the payment will not be subject to income tax.
This page was last modified on 09/10/2024