Taxes and Your Responsibilities

Taxes

Notice: New tax brackets and standard deductions are now in effect. The Internal Revenue Service (IRS) adjusts tax brackets on an annual basis, changing the amount of income that gets taxed at each rate. This means the amount of your retirement payment may have changed this year with a different amount of federal tax withheld.

If you were affected by this change, you received a check stub for your February payment in the mail reflecting your new tax amount. Retired members may update federal tax withholdings through Self Service at myretirement.ky.gov or by submitting Form 6017, Federal Income Tax Withholding Preference, to KPPA. Please keep in mind that, regardless of federal adjustments, your federal tax withholding election remains in place unless you update your withholding preference with KPPA.

KPPA cannot assist you in computing your estimated federal income tax. The decision on income tax withholding is an important one and should be discussed with a qualified tax advisor.

Federal Income Tax:

Monthly benefits from KERS, CERS, and SPRS are subject to federal income tax. If a member made contributions with after-tax dollars, then a portion of the monthly benefit will not be subject to federal income tax. The non-taxable portion of each monthly benefit is referred to as the "monthly exclusion" and represents those contributions paid prior to August 1, 1982, and any service purchases or recontributions paid with taxed income.

The monthly exclusion, which is a specific dollar amount, remains the same and is not affected by increases in the recipient’s retirement benefit. The monthly exclusion will continue until there are no remaining payments on the account or until the total of all monthly exclusions on the account equals the member’s taxed contributions.

Box 5 of the 1099-R, sent annually to recipients of retirement benefits, reflects the total of all monthly exclusions applied to a recipient’s benefits for the year.

Federal Income Tax Withholding:

Retired members may choose whether they want federal income tax withheld from their monthly retirement benefit payments. Members are encouraged to review their withholdings periodically. From year to year, the amount of federal tax being withheld from benefit payments (if any) may change due to changes in the withholding tables provided by the IRS. A member's original withholding choice will remain in effect until a new tax withholding form is submitted to KPPA. To change withholdings, a member may:

Update withholdings online through Self Service
Submit Form 6017 - Federal Income Tax Withholding Preference to KPPA

The Tax Reform Act of 1986 requires tax withholding from benefit payments if you are a U.S. citizen receiving your benefits in a foreign country. If you are not a U.S. citizen and are living in a foreign country, different income tax rules apply.

Kentucky State Income Tax:

All benefits attributable to service earned on or before December 31, 1997, are exempt from Kentucky income tax. The portion of the member’s benefits earned January 1, 1998 and after is subject to Kentucky income tax; however, this income may be excluded up to a certain amount. See Schedule P in the Kentucky Income Tax forms for the exclusion amount and calculation. Retirement credit for unused sick leave is treated as being earned at the time of retirement.

FOR EXAMPLE: Jenny was employed by the state in 1989. She retired at the end of 2014 with 27 total years. Her KERS pension for the calendar year is $30,000. She will also receive $15,000 from Deferred Compensation. Her state tax is calculated below.

1. Compute taxable pension income from KERS. Jenny earned 17 of her 27 years of service credit after January 1998 or 62.96%. Take this percentage and multiply by her annual benefit of $30,000, the amount of her KERS benefit subject to state income taxes is $18,888.00.

17 years ÷ 27 years total = 62.96%
$30,000 X 62.96% = $18,888.00

2. Add taxable pension income from all sources:

KERS……………………………………...………… $18,888.00
Deferred Compensation…………....................…..$15,000.00 Total……………………………………………...… $33,888.00

3. Apply the exclusion: $31,110 (pension exclusion)*
4. Taxable pension income for KY income taxes: $2,778.00

*The exclusion amount is subject to future legislative changes.
NOTE: The amounts shown in this example are based on a nonhazardous member's account and are meant only as an example.

Cost of Living Adjustments (COLAs):

All COLAs for CERS, KERS, and SPRS benefit recipients must be enacted by the General Assembly.

For more information, please visit Cost of Living Adjustments (COLAs)

Your Responsibilities

Lost or Stolen Check:

Although all payments are required to be direct deposit, you may receive a physical check for your first retirement payment. If your check is lost or stolen, please contact KPPA immediately. Your check can be replaced if it is destroyed, lost, or stolen, but the procedure may take up to four weeks.

Change of Contact Information:

It is important to keep your contact information current with KPPA. Doing so will ensure retirement checks and other information related to your account are delivered to you on time. If you need to change your contact information, please take the following steps:

Check with the Post Office: Be sure that your correct address is on file at the U.S. Post Office. Each month, KPPA updates the address on file for you with the U.S. Post Office through the National Change of Address (NCOA) system. If the correct address is not on file with the Post Office, your address on file at KPPA may be replaced with an incorrect address. If you receive your check by mail, the Post Office will not forward your check. Failure to update your address with KPPA will result in a delay in receiving your check.
Log in to Self Service: You can easily update your address on our Self Service website.
Complete and file a Form 2040: Complete a Form 2040, Change of Contact Information, and file it with KPPA.
Speak with a KPPA counselor on the phone: Contact our office toll free at 1-800-928-4646, or locally at 502-696-8800. After you provide your KPPA-issued Personal Identification Number (PIN) and KPPA Member ID, a counselor can update your address for you.
Check with your employer: Make sure your current employer if currently active or if you are retired / reemployed has your correct address.

Information from KPPA:

Following your retirement, you will be notified via a periodic newsletter of any changes made in the retirement statutes or federal law that may impact your benefits. The KPPA website will also be regularly updated with important information, so please be sure to check back regularly. In January of each year, we will issue a 1099-R providing the information you need to file your tax return. You do not need to request this information; your 1099-R will automatically be issued to you by the end of January if you received benefits during the previous calendar year. You can view this information online as soon as it is available by checking our Self Service website.

Power of Attorney:

If you execute a Power of Attorney empowering another person to act on your behalf as your attorney-in-fact, you should submit a copy of the Power of Attorney to KPPA if you wish for your attorney-in-fact to act on your behalf regarding KPPA matters. If you want your attorney-in-fact to be able to make health care transactions on your behalf, name beneficiaries, or change your beneficiary designation, you should specifically grant your attorney-in-fact that power in your Power of Attorney.

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