Tag Archives: Taxes

Taxes and Your NYSLRS Loan

You may be eligible to borrow money against your retirement contributions, but the loan may have tax implications. A NYSLRS loan is exempt from New York State and local income taxes, but it would be subject to federal taxes if the loan amount exceeds certain limits. That means you would need to include it on your federal income tax return for the year the loan is issued.(We’ll send you a 1099-R to file with your taxes.)

If you already have one or more outstanding NYSLRS loans, all or part of your new loan could be taxable. Also, if you already have a loan from a deferred compensation (457) or a tax-sheltered annuity (403-b) plan from your current employer, the total of all of your loan balances will be used in calculating your tax threshold.

The tax impact can be significant, and may even push you into a higher tax bracket. And, if you’re younger than 59½, the Internal Revenue Service (IRS) may charge a 10 percent penalty on top of your federal income taxes. Even if a substantial portion of your loan goes to the IRS, you’ll still have to repay the entire amount, plus interest, to NYSLRS. Moreover, if you do not pay off your loan before you retire, your pension will be permanently reduced.

You can have NYSLRS withhold 10 percent of the taxable amount from your loan check, but in most cases that will not cover the total amount you will owe the IRS.

Multiple Loans vs. Refinanced Loans

You may be able to avoid taxes, or at least lower them, by the way you structure your loan. If you have one or more NYSLRS loans and are considering another loan, you’ll have two options. You can take it as a separate loan (known as a multiple loan) or you can refinance your existing loan(s) to include the new loan amount.

The multiple loan option minimizes the potential tax impact. The minimum payment amount is higher for a multiple loan, but the minimum payment amount goes down as your loans are paid off. (The separate loan payments will be combined into a single payroll deduction.) The refinanced loan balance is spread over an additional five-year period. This reduces the minimum payment, but the taxable amount of a refinanced loan will always be greater than the taxable amount of a multiple loan.

Use Retirement Online to apply for a NYSLRS loan

 

Retirement Online

Retirement Online, our self-service tool that gives you secure access to your account information, is the most convenient way to apply for a loan. Retirement Online will also let you know how much you can borrow, your repayment options and whether your loan is taxable. If you don’t already have an account, visit our website to learn more.

We recommend that you speak to a tax advisor or a NYSLRS customer service representative before taking a taxable loan. For more information about taking a loan from NYSLRS, visit our Loans page.

Taxes and Your NYSLRS Retirement Benefit

Your NYSLRS retirement benefit isn’t subject to New York State or local taxes, but it is subject to federal income tax. Before you retire, take some time to think about how taxes could affect your retirement planning.

Will Your Pension Get Taxed in Another State?

While New York State won’t tax your NYSLRS retirement benefit, other states might. If you’re thinking of moving after retirement, you’ll need to consider the tax laws of the state you move to. The Retired Public Employees Association keeps a list of which states tax pension income on their website. And remember, if you do move, we’ll need your updated mailing address for our records.

Federal Tax Withholding Status for Your Pension

taxesAfter you’ve filed for retirement, we’ll reply back to you with a confirmation letter and some forms. One of these forms will be a W-4P form (Withholding Certificate for Pension or Annuity Payments). You’ll need to fill out this form to choose the amount you want withheld from your benefit each month for federal taxes. You can choose the withholding tax status that suits you, and you can change it any time afterward by completing a new W-4P form.

If you’re not sure how much you’ll need withheld for federal taxes, consider meeting with a tax professional to assist you before submitting the form. We also offer a federal tax withholding calculator on our website to help you plan.

Getting Your 1099-R

Once you start receiving your pension benefit, we’ll send you a 1099-R form for federal income tax filing purposes. A 1099-R form lists the distributions you’ll receive from your NYSLRS pension. We mail 1099-Rs out each year by January 31, so make sure we have your correct mailing address on file. This is especially important if you plan on moving in retirement.

We also feature an interactive 1099-R tutorial on our website. It can be a helpful tool to look at the first time you receive your 1099-R.

For more about taxes and your pension, please read our Tax Information About Your Pension FAQs.

NYSLRS Tax Overview

Tax season is ramping up, so it’s a good time to talk about the tax information related to your NYSLRS pension benefit.

1099-Rs

NYSLRS retirees and beneficiaries who receive a taxable benefit from NYSLRS are sent a 1099-R form each year. Certain NYSLRS members may also receive a 1099-R tax form if, for example, you borrow a taxable NYSLRS loan, default on a NYSLRS loan, or if you end your membership and withdraw your contributions. The 1099-R is a statement that shows:

  • The total benefit paid to you in a calendar year.
  • The taxable amount of your benefit.
  • The amount of taxes withheld from your benefit.

We mail out all 1099-R forms — more than 500,000 — by January 31, so if you haven’t already received your form, be sure to check your mail over the next few days.

If you lose your 1099-R, you can request a reprint from us starting the second week of February. Once reprints are available, we’ll process requests each night and mail them out the next day. This year, reprints will be available for calendar years 2013, 2014, and 2015.

1099-R Interactive Tutorial

1099-r tax form tutorial screenshot

Understanding your 1099-R Tutorial

We feature an interactive tutorial about the 1099-R form on our website. It walks you through a sample 1099-R, and offers a short explanation of specific boxes on the form.

Changing Your Federal Tax Withholdings

Your NYSLRS pension benefit is subject to federal taxes. You can change your federal tax withholding status at any time by sending us a W-4P form. (A handy tutorial about the W-4P form that walks you through the steps on filling it out is available on our website.)

W4-P Tax form tutorial screenshot

Understanding your W-4P Form Tutorial

We also offer a federal tax withholding calculator on our website to help you estimate how much should be withheld.

If you have other tax-related questions about your benefit, please visit our Tax FAQs.