After you retire, we will send you a 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. Therefore, you should report your retirement benefits on your federal and North Carolina tax returns regardless of whether you owe any income tax.

Part of your retirement benefit may not be subject to federal income tax because the tax was withheld while you were working. Included in the nontaxable part of your retirement benefits are contributions you made before July 1, 1982, and any nonrollover service purchases you made.

Note: We encourage members to review their tax withholding annually or when there is a life event. There are sometimes changes to federal tax laws that may impact your situation. We encourage you to discuss your situation with your financial advisor or tax preparer.

If you are a North Carolina resident and have maintained five or more years of retirement service credit as of August 12, 1989, your TSERS retirement benefit is not subject to North Carolina income tax. If you do not have five 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 TSERS 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.

Note: We encourage members to review their tax withholding annually or when there is a life event. There are sometimes changes to state tax laws that may impact your situation. We encourage you to discuss your situation with your financial advisor or tax preparer.

In January of the year after the year you received a refund, we will send you a Form 1099-R showing the amount of your refund, the taxable portion, the amount of tax withheld (if any), and other related information. We will also send copies to the Internal Revenue Service and North Carolina Department of Revenue.

You pay no federal income tax on after-tax purchases of service or on the amount you contributed before the date your employer adopted a tax sheltering resolution (if they have done so). However, the amount you contribute after the date your employer adopted a tax sheltering resolution (if they have done so) is subject to federal income tax. 

Also, all interest your contributions have earned is subject to federal income tax. Federal income tax laws require withholding from the taxable portion of your refund unless that portion of your refund is directly rolled over to an eligible IRA or eligible employer retirement plan that will accept your rollover. If you do not roll over the taxable portion of your refund directly to an eligible IRA or eligible employer plan that will accept your rollover, we will withhold 20 percent of the taxable portion of your refund for federal income tax purposes. Withholding is mandatory unless the taxable portion of your refund is directly rolled over. 

In addition to income tax, you may owe a 10 percent excise tax on the taxable portion of a refund received before your death, disability, or reaching age 59½. You can defer the income tax and avoid the 10 percent excise tax by rolling over the taxable portion of your refund to an eligible IRA or eligible employer plan. Consult the Internal Revenue Service, your attorney or your accountant for information relative to your situation.

If you are a North Carolina resident and have maintained five or more years of retirement service credit as of August 12, 1989, your refund of TSERS contributions is not subject to North Carolina income tax. If you do not have five years of maintained retirement service credit as of August 12, 1989, the taxable portion of your refund is subject to having four percent withheld for North Carolina income tax.

Generally, your beneficiary pays no income tax on the lump-sum death benefit for active employees or the $10,000 Contributory Death Benefit for Retirees, which are treated as life insurance benefits for tax purposes.