TAXABILITY OF YOUR LACERA RETIREMENT ALLOWANCE
Retirement allowances are considered taxable income under both Federal and State of California income tax laws. LACERA must withhold Federal and California State taxes from your monthly retirement allowance unless you elect to have no withholding.

LACERA will withhold California State tax from your retirement allowance only if you are a California resident. If you reside in another state, your LACERA retirement income may be taxable in that state. State tax requirements on retirement income differ from state to state, but the "source tax" law protects you from paying state taxes in two states on the same retirement income.

FEDERAL INCOME TAX WITHHOLDING
When you retired or began receiving benefit payments from LACERA, you had the opportunity to choose federal income tax withholding from your benefit payments. You also had the option to elect not to have federal income tax withheld. You may change your decision at any time. You have the option to change your tax withholding election. LACERA will remind you about your option to adjust your tax withholding yearly through our retiree newsletter, Spotlight, and on your January check.

Your original withholding choice will remain in effect until you file a new W-4P/DE-4P tax withholding election form with LACERA. Click here to access the tax withholding form. You may also use Form W-4P, which is available from the IRS and Form DE-4P, which is available from the California Employment Development Department. If you make a change, it will be put into effect by the first of the month that is at least 30 days after LACERA receives your completed form.

Payment of your income tax is your responsibility. Withholding is one way for you to pay a portion of your tax. If no tax or not enough tax is withheld from your benefits, you may have to pay estimated taxes during the year or pay a tax penalty at the end of the year. Whether you have to pay federal income tax on your benefit depends on the total amount of your taxable income and the type of benefit you receive.

Your decision on withholding tax is an important one. For questions regarding tax matters, consult with a professional advisor; LACERA does not offer tax or legal advice.

This information applies to LACERA retirees, survivors, and beneficiaries who are U.S. citizens and live in the United States. If you are a U.S. citizen living outside the United States, or if you are a “non-resident alien” (living outside the United States and not a U.S. citizen), different income tax withholding rules apply. Contact LACERA for more information. (8-1-06)

SERVICE-CONNECTED DISABILITY RETIREMENT
You may be eligible for special tax exclusions if you received a Service-Connected Disability (SCD) Retirement.

If you received an SCD Retirement, an amount equal to 50% of your final average compensation may be excludable from your gross income for federal tax purposes, as provided by Section 104(a)(1) of the Internal Revenue Code. The amount of any cost-of-living adjustment (COLA) attributable to that amount is also excludable. Any remaining allowance amount or COLA is taxable. Upon your death, your surviving spouse or minor child would be eligible for this tax exclusion if he or she is eligible to receive a continuing allowance from LACERA.

This information is based on a 1976 IRS Private Letter Ruling issued to Ventura County.

Excerpt from IRS Private Letter Ruling to Ventura County (2-21-06)

For questions regarding tax matters, consult with a professional advisor; LACERA does not offer tax or legal advice.

3/21/08