State and Federal Taxes
You Need to Claim KPERS Contributions
on Your Kansas
Income Tax Return
Taxes on Lump-sum Payments
When
You Withdraw or Retire
Tax Resources
-
Important Tax Information booklet details
tax implications for receiving rollover and
lump-sum payments, or spouse and beneficiary benefits. (PDF, 164KB) -
Substitute W4-P Form (PDF, 206KB): to change tax withholding on pension payments
-
"Adding KPERS Contributions Back Into Your Tax Return" (video from Kansas Department
of Revenue) -
IRS Publication 575 "Pension and Annuity Income" (link to PDF at www.irs.gov)
-
Sample 1099-R Form (PDF, 312KB)
You Need to Claim KPERS Contributions on Your Kansas Income Tax Return
This applies to active members of all Retirement System plans:
- Kansas Public Employees Retirement System (KPERS)
- Kansas Police and Firemen's Retirement System (KP&F)
- Kansas Retirement System for Judges (Judges)
The amount you contribute each year from your salary to the Retirement System is subject to Kansas income tax. Your contributions are deducted from your pay on a pre-tax basis for federal income tax purposes. Because of this, you need to add the contributions back into your gross income when you file your Kansas state income taxes each year.
- Complete a Schedule S for the Kansas income tax return to find out your modification to federal adjusted gross income.
- Enter the total amount you contributed to KPERS during the past calendar year on line A2 of Schedule S.
- Find this amount on your W-2, typically in Box #14.
- Enter the amount from line A19 on Schedule S on line #2 "Modifications to Federal Adjusted Gross Income" on form K-40 Kansas Individual Income Tax.
See the "Schedule S Line-By-Line Instructions" in the Kansas Income Tax Booklet for more information or contact the Kansas Department of Revenue.
Taxes on Lump-Sum Payments When You Withdraw or Retire
Generally, lump-sum payments can be paid directly to you or rolled over into an eligible retirement plan. Read the Important Tax Information booklet carefully to understand the federal tax treatment before taking a lump-sum payment.
Payment Paid to You
Federal law requires a mandatory 20 percent tax withholding
on taxable amounts paid directly to you. If you are under age 59 1/2, you may owe an additional 10 percent tax.
Direct Rollover
Taxable amounts that are rolled over will not be subject to federal income tax until
you take it out of the traditional IRA or the eligible employer
plan.
Depending on the type of plan, the later distribution may be subject to different tax treatment. If you roll over a payment from KPERS when you withdraw or retire, the funds adopt the tax characteristics of the plan that receives them. The tax treatment of later payments from the eligible employer plan or traditional IRA receiving your direct rollover might be different than if you received your benefit directly from KPERS.
KPERS lump-sum benefits, including earnings, generally keep their Kansas state tax-exempt status, even when rolled over into a qualified retirement account containing other retirement funds.
- Kansas Department of Revenue Tax Notice 05-04 (link to www.ksrevenue.org): information about Kansas income tax treatment of certain payments from KPERS
- K.S.A 74-4923(b) (link to www.kslegislature.org): 2007 legislation that modified the previous tax notice
For more information on Kansas tax treatment of KPERS distributions, please contact the Kansas Department
of Revenue's Taxpayer Assistance Center.
Nontaxable Amounts
Part of your lump-sum payment will be considered nontaxable if you made any contributions on an after-tax basis.
You made contributions on an after-tax basis if you:
- Were a member before July 1984.
- Purchased service with a lump-sum payment other than a rollover or trustee-to-trustee transfer.
If you retire: Federal law allows you to "recover" these amounts gradually without paying income tax on them again. A portion will be included in your PLSO payment and the rest will be paid to you gradually in your regular monthly benefit payments according to IRS regulations.
If you withdraw: Nontaxable amounts may be paid to you or rolled over into a traditional IRA or to certain employer plans that accept rollovers of after-tax contributions.
1099-R Forms
Any time you receive a payment from KPERS, you'll receive a 1099-R form for your tax return. If you choose a Partial Lump-Sum Option (PLSO) when you retire, you will receive two 1099-R forms in January – one for your regular monthly benefits and one for your PLSO payment. If you roll over your PLSO payment, you'll receive a 1099-R for each plan you sent money to.
Taxes on Retirement Benefits
In general, Retirement System benefits, including the $4,000 retiree death benefit, are subject to federal income tax, but not Kansas income tax. If you move to another state, check if your retirement benefit is taxable in that state. Your monthly benefit is taxable from the time your benefits begin. KPERS will withhold 20 percent for federal income tax from a lump-sum payment unless it is rolled over into an eligible plan. You may also be subject to an additional 10 percent tax if you are under age 59 1/2.
Withholding Information
You can control how much tax is withheld by filing a Withholding Certificate for Pension Benefit Payments (Substitute W-4P) form with KPERS. Download one on our web site or contact KPERS for a paper form. You can change your federal tax withholding anytime. Under current law, you cannot designate a specific dollar amount on the form without first indicating your marital status and the number of withholding allowances.
If your monthly benefit is $1,680 or more, KPERS will withhold federal tax, unless you file a W-4P tax form with KPERS. You will receive the form when you retire. If you don't return the form by the deadline, KPERS is required to withhold taxes as if you are married and claiming three exemptions. If you choose not to have taxes withheld from your retirement benefit, you are still liable for federal income tax. You may also be subject to penalties under the "Estimated Tax Payment" rule if your withholdings are not high enough.
If your monthly benefit is less than $1,680 per month, KPERS will not automatically withhold federal income tax. To have tax withheld, file a W-4P tax form with KPERS. You can download one from our web site or contact our office to receive one by postal mail.
If you contributed to the Retirement System before July 1984, part of your pension will not be taxable. Federal law allows you to "recover," tax-free, any contributions you made on a post-tax basis, and regulates the rate at which you make this recovery. If you did not contribute to the Retirement System before July 1984, your entire benefit is taxable unless you have purchased service with a lump-sum payment. Lump-sum purchases other than rollovers or trustee-to-trustee transfers are on a post-tax basis.
On January 31 each year, the Retirement System will mail 1099-R tax forms to you. These forms contain important information for your federal tax return. If you don't receive a form by mid-February, please contact the Retirement System. For questions about taxes not covered on this page, please contact a qualified tax professional or the IRS.
Additional information and IRS instructions are printed on the back of the form. See a qualified tax professional or contact the IRS for questions about your individual tax situation.
Taxability Rules for KPERS Retirement Benefits
Federal tax laws have changed over the years. The following summarizes the changes and the methods KPERS uses to calculate tax-free amounts.
If you retired before July 1, 1986
You made contributions with after-tax money. Either the Three-Year Rule or the General Rule applies to your benefit. If you chose the Three-Year Rule, you have already recovered those contributions tax-free and your current benefit is taxable.
If you retired July 1, 1986 to November 18, 1996
KPERS calculated the taxable amount of your benefit (Box 2a) using the General Rule. You could have chosen to calculate the taxable amount using the Simplified Method instead. Attach a note to your tax return stating that you are using the Simplified Method to calculate the taxable amount.
If you retired after November 18, 1996
KPERS uses the Simplified Method to calculate the taxable amount of your benefit.
Note: Simplified Method(s) above were formerly known as Simplified General Rule(s).
Beneficiaries and Joint Annuitants
If you are a beneficiary or joint annuitant, your benefit generally has the same income tax status as the deceased member’s benefit. However, special rules may apply. For detailed information, see IRS Publication 575 "Pension and Annuity Income."
Retiree Death Benefit: KPERS provides a $4,000 death benefit when a retiree dies. This benefit is taxable for federal income tax purposes to the named beneficiary, but not Kansas state taxes.
If you are a beneficiary, you will receive a 1099-R form to include with your federal tax return, even if you assign the benefit to a funeral establishment.
Frequently Asked Questions
When are 1099-R forms mailed?
Every year by January 31.
Why didn't I receive my 1099-R form?
KPERS sends your 1099-R form to the address we have on file. It will not be forwarded, even if you have changed your address with the U.S. Postal Service. Please contact us with your current address.
Why did I receive more than one 1099-R form?
If you received more than one type of payment during the year, KPERS sends separate 1099-R forms.
Box 7 identifies the type of benefit, which the IRS codes with a number or letter. A code explanation is on the reverse side of Copy C.
You'll receive more than one 1099-R if you:
- Received a lump-sum payment in the last year.
- Received benefits as a member and as a joint annuitant or beneficiary.
- Retired from more than one retirement plan (KPERS, KP&F, Judges).
How do I change my tax withholding?
Box 4 shows the amount of federal income tax withheld from your benefit. You can start, stop or change your federal withholding anytime using the KPERS Member Web Portal. Once you are logged in, you can view your current withholding information and make changes instantly.
You can also complete a Withholding Certificate for Pension Benefit Payments form (Substitute W-4P) and mail it to KPERS.
What is Box 5?
The title the IRS assigns to box 5, "Employee contributions or insurance premiums," can be confusing. KPERS does not use this box for insurance premiums, nor is it a deduction of any kind. An amount appears in this box only if you made contributions before 1984 or purchased service credit with previously-taxed money.
Simply put, box 1 - box 2a = box 5. Box 1 shows everything we paid you in the last calendar year. Box 2a is the taxable portion. Box 5 is the non-taxable (previously-taxed) portion. If your benefit is fully taxable, Box 5 will be blank.
Why is the amount in Box 5 not taxable?
If you made KPERS contributions before 1984 or purchased service credit with previously-taxed money, you have already paid taxes on those contributions. These contributions are separated because you don't have to pay income tax on them again.
What is "IRS Net Investment"?
If box 5 shows the previously-taxed portion of your benefit in the current year, "IRS Net Investment" shows the total amount of all your previously-taxed contributions. The IRS allows you to recover this total amount tax-free over time. The amount you have already been paid from your previously-taxed contributions, up to December 31, 2010, is also listed in this section. If you have received all your previously-taxed contributions, your benefit is fully taxable.
I am a beneficiary. Can I roll over the $4,000 retiree death benefit?
Yes. Federal law allows a non-spouse beneficiary the opportunity to roll over the death benefit to an individual retirement account or annuity (IRA) established for the purpose of receiving the distribution. The IRA will be treated as an “inherited” IRA. The IRA must be established in a manner that identifies it as an IRA with respect to a deceased individual and also identifies the deceased individual and the beneficiary, for example, “Tom Smith as beneficiary of John Smith.”
I am a beneficiary. I received a $4,000 retiree death benefit as a direct payment. Why did I receive a 1099-R form?
The $4,000 retiree death benefit is taxable income. You received a 1099-R form to include with your federal income tax return.
I am a beneficiary. I assigned the $4,000 death benefit to a funeral home. Why did I receive a 1099-R form?
The named beneficiary is responsible for paying federal taxes on the death benefit. Even if you assign the death benefit to a funeral home, you are still responsible for the taxes.