The monthly pension benefit that you receive is generally considered taxable income; however, a portion of your monthly benefit may be considered non-taxable based on contributions that you have paid into the system on an “after-tax” basis, or if you are receiving a work-related disability pension benefit. Because tax laws can be complex, the System encourages retirees to seek professional advice on tax-related questions and concerns as the System is unable to provide tax advice.
No later than January 31 of each year, the PSPRS mails to all benefit recipients a 1099-R statement. This statement is similar to a W-2 that you received as an employee. The 1099-R provides the gross amount of benefits that you received for the year (i.e., Box 1), the taxable portion of the benefits (i.e., Box 2a), plus what you withheld for Federal and Arizona state income taxes. Note that Box 5 on the 1099R statement represents the employee contributions that you previously paid taxes on; it is the difference between Box 1 and 2a.
If you need the amount that you paid towards your health insurance, you will need to obtain a copy of your December “Direct Deposit Notice” through our Members Only portal, or you may Contact Us for this notice.
You also have access to your current and previous 1099-R statements through our Members Only portal.
1095-B Health Care Coverage Statement
Each year a 1095-B statement will be issued to you if you were enrolled in the group insurance plan provided by the Arizona State Retirement System. This form provides information about your health coverage, including who was covered and when the coverage was in effect. For Non-Medicare members, the statement will be sent from UnitedHealthcare. For the Medicare eligible members, the statement is sent from Medicare. PSPRS does not issue and cannot provide you with your 1095-B statement.
Federal Income Taxes
Unless you elect otherwise, Federal law requires us to withhold Federal income taxes from your benefit payments based on married with 3 exemptions and based on the taxable portion of your benefits. If you would like to update your Federal withholding, complete the W-4P form (1 page) or W-4P (6 pages includes instructions). You may mail, fax, or scan/email the form to our office; we cannot accept an electronic signature.
If there are contributions that you previously paid taxes on, the non-taxable portion was calculated using the Exclusion Ratio Safe Harbor Method.
Pension Protection Act (HELPS Act) for Public Safety Retirees: If you are an eligible public safety retiree, you may be able to reduce your taxable income up to $3,000 for health insurance premiums; however, since the System cannot provide tax advice, you will need to consult with your tax advisor to find out if you are eligible to receive this credit.
Arizona State Income Taxes
If you would like to update your Arizona state withholding election, complete the A-4P form. You may mail, fax, or scan/email the form to our office; we cannot accept an electronic signature. Please note that the System can only withhold for Arizona state income taxes.
Retirees living in Arizona may be required to pay Arizona state income taxes on benefits paid in excess of $2,500 per year.
Retirees living in other states will need to consult with a tax advisor or the Arizona Department of Revenue (DOR) to determine if you are required, or not, to pay Arizona income taxes.
Changing Your Tax Elections
If you would like to make changes to your tax withholding elections, you have the ability to use the Tax Calculator in your Members Only account to assist you in determining what tax elections work best for your financial situation and since tax laws can be complex, we encourage you to consult with your tax advisor as the System is unable to provide tax advice.
To update your elections, we encourage you to do so by making these changes on-line in your Members Only account, or you may access the withholding forms (W-4P, A-4P) from the Forms and Resources section of our website and return them by mail, fax, or scan/email. The cut-off to process any changes to your account is the 10th of the month to be processed at the end of the same month; requests received after this date will be processed at the end of the following month.
To access your Members Only account:
For additional tax information in regard to distributions from the System (DROP payments, survivor/death benefits, alternate payee’s, etc.), see the Special Tax Notice Regarding Plan Payments.