In general, SERS pension payments are subject to federal income tax but exempt from Pennsylvania state and local income tax for PA residents. If you live outside of Pennsylvania, you'll need to be aware of the state/other rules regarding taxes.
Each January we will send you at least one 1099-R tax form listing the total benefit you received and other tax information that you will use to file your federal income tax return.
You could receive more than one 1099-R from us in any one tax year if you retired that year and chose to withdraw any of your contributions and interest in a lump sum, you received a payment from your own SERS pension and also received a survivor or beneficiary payment from a deceased SERS member's pension, or you turned 59.5 during that tax year.
If you would like us to withhold money from your monthly pension payments for federal income tax, let us know. You can authorize SERS to start, stop, or change the amount at any time by completing an IRS W-4P Withholding Certificate for Periodic Pensions or Annuity Payments form. We can mail you a form upon request by calling 1-800-633-5461. If you are planning to retire, your pension plan specialist will include an IRS W-4P form with your pension application.
When you request the IRS W-4P form from us, we will include a SERS-specific cover sheet that is pre-populated with additional information that will allow the form to be processed quicker and help assure the change is applied to the correct benefit payment, which is especially important for members who receive more than one monthly benefit payment. (For instance, from their own SERS pension and as a beneficiary or survivor of a deceased SERS member’s pension.)
The IRS redesigned its W-4P form for 2023 and changed the withholding calculation method. The new method does not allow a member to only designate a fixed amount of withholding. In addition, no other withholding forms or earlier editions of the W-4P form may be used going forward.
If you need help completing the IRS form or have questions about your tax liability, the IRS maintains a directory of federal tax return preparers.
If you have delinquent tax bills, the IRS may seize a portion of your pension for payment of the outstanding bills.
If you retire before the year you turn 55 and you choose to withdraw any of your contributions and interest when you retire, the taxable portion may be subject to an additional 10% federal excise tax unless you roll the money directly into a traditional IRA or other qualified plan, like your deferred compensation account.
Rollovers allow you to delay paying federal income tax on the money until you withdraw it from the IRA or other qualified plan, when your tax liability may be lower. Contact a tax advisor or financial planner to discuss the different tax consequences.