TAXES ON PERA BENEFITS

INCLUDES A PERA WITHHOLDING PREFERENCE FORM

Revised August 2017

CONTENTS
Overview...................................................1

Federal Income Tax ...............................1

Colorado State Income Tax ................ 6

Tax Reporting.......................................... 8

Setting Up Your Withholding............... 9

Changing Your Withholding................. 9

Withholding
Preference Form.................... Back Page
OVERVIEW
This booklet provides information about how Colorado PERA benefit
recipients are affected by federal and Colorado state income tax laws.

A form to authorize or change your withholding is included in this booklet.

The discussion of cost recovery of tax-paid (or after-tax) amounts

under “Federal Income Tax” below describes the method being used for
current retirees. Tax requirements are continually changing, and different
methods of recovery have been used over time.

FEDERAL INCOME TAX

PERA benefits are subject to federal income tax. The taxable amount of
your benefit will depend upon the tax-paid and tax-deferred balances in
your member contribution account at retirement.
» Under the PERA benefit structure, the tax-paid balance in your member
contribution account is based on your member contributions made
before July 1, 1984, and any tax-paid money you used to purchase
service credit.
» Under the Denver Public Schools (DPS) benefit structure, the tax-paid
balance in your member contribution account is based on your member
contributions made before January 1, 1986, and any tax-paid money
you used to purchase service credit.
Since these amounts were already taxed, they reduce the taxable portion
of your benefit.

I f you have specific questions regarding your federal income tax return,
contact the IRS (1-800-829-1040 or www.irs.gov) or consult with a
tax professional.

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Tax law has provided for a variety of methods to determine how those
contributions are reportable. PERA uses the IRS’s “Simplified Method” to
calculate the nontaxable portion of your benefit. Basically, the nontaxable
dollars are prorated over a specific number of payments as shown in
the IRS tables provided in this booklet and the nontaxable amount is
disclosed annually on your 1099-R. For more information, contact the IRS
for a copy of Publication 575, Pension and Annuity Income.

PERA OPTION 1 AND DPS OPTIONS A OR B | For benefits effective

December 1, 1996, or later

Age at Retirement Number of Payments

55 and under 360
56 to 60 310
61 to 65 260
66 to 70 210
71 and over 160

PERA OPTIONS 2 OR 3 AND DPS OPTIONS P2 OR P3 | For benefits

effective on or after January 1, 1998

Combined Ages* Number of Payments

110 and under 410
111 to 120 360
121 to 130 310
131 to 140 260
141 and over 210
* Combined ages of retiree and cobeneficiary on effective date of retirement.

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DISABILITY RETIREMENT
If you are receiving a disability retirement benefit, your entire benefit is
taxable until you reach “minimum retirement age.” PERA uses the age
at which you would first be eligible for reduced service retirement as
“minimum retirement age.” For many disability retirees, service credit is
projected to 20 years, thus minimum retirement age is 55.

If you made contributions prior to July 1, 1984, under the PERA benefit
structure, or you made contributions prior to January 1, 1986, under the
DPS benefit structure, and/or purchased service credit with after-tax
money, the “Simplified Method” of calculation described on page 2
for determining the tax-free portion of your benefit becomes effective at
your “minimum retirement age.”

If you are under age 65 and totally disabled, you may be eligible for
a special federal income tax credit. To determine if you qualify for
the credit, contact the IRS and request a copy of Schedule “R” and
Publication 524, Credit for the Elderly or the Disabled.

SURVIVOR BENEFITS
If you are a surviving spouse receiving a benefit, PERA calculates the tax-
free portion of your benefit, if any, using the “Simplified Method.”

If you are receiving a child(ren)’s survivor benefit, your tax professional

would calculate cost recovery, if any, under the IRS’s “General Rule.”

Surviving spouses and qualified children who receive survivor benefits

based upon the death of a State Trooper who was killed in the line of duty
may be exempt from federal income tax. Consult a tax professional to
determine if you qualify for this exemption under Section 101(h) of the
Internal Revenue Code. If you qualify for this exemption, please contact
PERA so your withholding and tax reporting can be adjusted. PERA may
request you submit documentation to demonstrate that you qualify for
this exemption.

A
 nswers to frequently asked questions about federal taxes are
available in IRS Publication 4190, Tax Guide for the Retiree. Log on
to www.irs.gov to view a copy or request a copy be mailed to you by
calling 1-800-829-3676.

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 Allowances: PERA uses the number of withholding allowances claimed
by you on your Withholding Preference Form to determine how much
federal income tax to withhold from your monthly benefit.
Exemptions: The number of exemptions claimed by you on your
federal income tax return is used in the calculation to determine your
taxable income.

FEDERAL WITHHOLDING CHOICES

You may instruct PERA to withhold an exact dollar amount or flat
percentage from your monthly benefit, or calculate your withholding
based upon tax tables. If PERA calculates your withholding, your taxable
benefit (not your gross benefit) will be used in the calculation.

You may instruct PERA to do one of the following:

» Not withhold federal tax from your benefit. If you choose this option,
you may be responsible for paying estimated taxes. Also, you may be
subject to a penalty under the estimated tax rules if your withholding
and estimated tax payments do not meet the required amounts. If you
live in a foreign country, you cannot choose this option. See “Federal
Tax Withholding for Benefit Recipients With Foreign Addresses” on
page 5 for more information.
» Withhold federal tax based on your marital status and the number of
withholding allowances you choose.
» Calculate your withholding and withhold an additional specific
dollar amount.
» Withhold an exact dollar amount.
» Withhold a flat percentage.

If you do not provide instructions, federal law requires PERA to withhold

federal income tax at a rate for a married individual claiming three
allowances. This means there will be no withholding unless your monthly
taxable benefit is more than $1,734 in 2017. (This amount changes
whenever federal withholding tables change, typically in January.)

While PERA may not be withholding money from your benefit for income
tax, this does not mean your benefit will not be subject to federal income
tax. For instance, in 2017, if you are age 65 or older, with a monthly
benefit of $1,100, and you are single with one exemption, using the
standard deduction for age 65 and older, your taxable income will be
about $1,250. You will owe about $125 in federal taxes.
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You should examine your withholding periodically to make sure you have
enough taxes withheld so you will not have a tax penalty or you may be
responsible for the payment of estimated tax.

The table below shows examples of federal income tax withholding

if 100 percent of your pension income is taxable.

FEDERAL INCOME TAX WITHHOLDING

Taxable
$1,500 $2,000 $2,500 $3,000
Monthly Income
Single with $106.73 $181.73 $256.73 $331.73
1 Allowance
Married with $44.15 $94.15 $144.15 $213.53
1 Allowance
Married with $10.40 $60.40 $110.40 $162.90
2 Allowances
Married with $0 $26.65 $76.65 $126.65
3 Allowances

FEDERAL TAX WITHHOLDING FOR BENEFIT RECIPIENTS WITH

FOREIGN ADDRESSES
If your address is outside of the United States, you must complete one of
the following forms for federal income tax withholding:
» If you are a U.S. citizen (even though you reside outside of the U.S.) you
must provide to PERA an IRS Form W-9, Request for Taxpayer
Identification Number and Certification. The only purpose of this form
is to gain your certification that you are a U.S. citizen; PERA is not
requesting you obtain a new Taxpayer Identification Number.
» If you are a foreign person (a nonresident alien), you must provide
to PERA a signed statement verifying the country of your current
citizenship and the country of your current residence, and an IRS
Form W-8BEN, Certificate of Foreign Status of Beneficial Owner
for United States Tax Withholding and Reporting, to provide the
following information:
• Establish that you are a foreign person;
• Claim that you are the beneficial owner of the income for which
Form W-8BEN is being provided; and
• Claim a reduced rate of, or exemption from, withholding as a
resident of a foreign country with which the U.S. has an income tax
treaty (if applicable).
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Additional information is available from the IRS (1-800-829-1040 or
www.irs.gov) in Publication 519, U.S. Tax Guide for Aliens.

If we do not receive either the Form W-9 or the signed statement and
Form W-8BEN, PERA is required by law to withhold 30 percent from any
benefit payments you are to receive. If you have any questions about your
tax status, please contact your tax professional.

RETIRED PUBLIC SAFETY OFFICERS

The Pension Protection Act of 2006 permits eligible retired public safety
officers to exclude up to $3,000 of their qualified health insurance
premiums from their gross federal taxable income each year, as long as
the premiums are deducted from their retirement benefits. According
to federal requirements, it is the responsibility of the retiree or benefit
recipient to claim the exclusion for premium payments that were
subtracted from their PERA benefit as a reduction in taxable income on
their IRS Form 1040. The IRS Form 1099-R that is sent to the retiree or
benefit recipient does not reflect this exclusion. PERA encourages the
retiree or benefit recipient to consult with a tax professional or the IRS
with questions about this deduction.

COLORADO STATE INCOME TAX

Colorado law excludes from Colorado state income tax total pension
income up to $20,000 per year per person for those retirees age 55
through 64, or $24,000 for those retirees age 65 and over. The retiree’s
age on December 31 is used to determine the exclusion amount for that
year. Pension income includes both PERA and DPS benefit structure
benefits, Social Security payments, certain other retirement pensions,
and distributions from Individual Retirement Accounts and tax-deferred
savings plans. You also qualify for the pension exclusion if you are
receiving a survivor benefit, regardless of your age.

PERA can withhold Colorado state income tax if you request it. If your
primary residence is outside the state of Colorado, you do not need to
withhold Colorado state taxes. PERA does not withhold taxes for any
other state.

I f you have specific questions regarding your state income tax

return, contact the Colorado Department of Revenue (303-238-7378
or www.colorado.gov/tax) or consult with a tax professional.

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Withholding for Colorado state income tax is not necessary if your
taxable pension income is less than $20,000 (or $24,000 if you are age
65 or older), and you have little or no other taxable income. In this case,
if you have taxes withheld, you will have to file a tax return to receive a
refund of this money.

If your taxable pension income exceeds the exclusion amount listed

above, if you have significant other taxable income from which taxes
are not withheld (for example, interest, rental income, etc.), or you are a
retiree under age 55 not eligible for the exclusion, you may want to have
Colorado state income tax withheld from your benefit.

CONTRIBUTIONS BETWEEN 1984 AND 1986

Under the PERA benefit structure, during the period of July 1, 1984,
through December 31, 1986, your contributions were tax-deferred
for federal income tax purposes, but were taxable for Colorado
state income tax purposes.

Under the DPS benefit structure, during the period of January 1, 1986,
through December 31, 1986, your contributions were tax-deferred
for federal income tax purposes, but were taxable for Colorado state
income tax purposes.

Because of this difference, Colorado allows an additional exclusion

beyond the $20,000 (or $24,000 if you are age 65 or older) in calculating
your state income taxes if you made contributions during that period.
This adjustment will only affect you if your taxable pension income
exceeds $20,000 (or $24,000 if you are age 65 or older) per year.

Full details and the required worksheets are available from the Colorado
Department of Revenue (303-238-7378 or www.colorado.gov/tax) in the
publication, FYI Income 16: Subtraction from Income For Recipients of
PERA or Denver Public Schools Retirement Benefits.

STATE WITHHOLDING CHOICES

If you instruct PERA to withhold Colorado state income tax, you may
choose from four methods (similar to the federal withholding choices
described on page 4). For calculated withholding, you must also choose
between Colorado state tax tables that use the pension exclusion and those
that do not use the exclusion.

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Your marital status and the number of allowances you have on file with
PERA for federal withholding will be used to calculate state withholding.

You may instruct PERA to do one of the following:

» Not withhold Colorado state income tax from your benefit.
» Use one of the tax tables, with or without the pension exclusion (see
page 6), to calculate Colorado state income tax withholding.
» Use one of the tax tables, with or without the pension exclusion (see
page 6), to calculate Colorado state income tax withholding, and
withhold an additional specific dollar amount.
» Withhold an exact dollar amount.
» Withhold a flat percentage.

The table below shows examples of Colorado state income

tax withholding.

COLORADO STATE TAX WITHHOLDING

$2,500/Monthly Using $20,000 Using $24,000 Not Using

Pension Income Exclusion Exclusion Exclusion
Single with $14 $0 $91
1 Allowance
Married with $0 $0 $67
1 Allowance
Married with $0 $0 $51
2 Allowances
Married with $0 $0 $35
3 Allowances

If you have Colorado state income taxes deducted from your benefit and
later move out of state, you must instruct PERA to stop withholding state
income taxes.

TAX REPORTING
Each year, PERA will send you an IRS Form 1099-R by January 31. This
form is similar to the W-2 you received as an employee and includes the
following information:
» Total benefits you received for the year.
» Total benefits that are taxable.
» Taxes withheld for the year.
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SETTING UP YOUR WITHHOLDING
If you are a new retiree, you should complete and return the Withholding
Preference Form included in this booklet by the 15th of the month
in which your first benefit payment will be issued. For most retiring
members, this would be the month in which your retirement is effective.

Without instructions from you, federal law requires PERA to withhold

federal income tax at a rate for a married individual claiming three
allowances, and no state withholding will be taken.

If you will be receiving more than one month’s benefit in your first
payment, you might want to complete two Withholding Preference Forms
with different instructions. One form would cover only your first benefit
payment and the second would cover subsequent payments.

You may also complete the Withholding Preference Form

online at www.copera.org using your User ID and password.

CHANGING YOUR WITHHOLDING

You can change your withholding status at any time. PERA must receive
your instructions by the 15th of the month in which you want the change
to be effective. Use the attached Withholding Preference Form or
complete the form online using your User ID and password.

Taxes withheld cannot be refunded later by PERA. If you have too much
withheld during the year, you must file a tax return to receive a refund
from the IRS or the Colorado Department of Revenue.

E
 ven though PERA may withhold taxes from your benefit, you are
responsible for any taxes owed to the IRS.

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Contact PERA
Visit PERA’s website at
www.copera.org.

This booklet provides general Call PERA’s Customer Service

information about taxes on PERA Center at 1-800-759-7372.
benefits. Specific questions about
your taxes should be directed to the
Internal Revenue Service or to your Visit the PERA offices in Denver,
personal tax consultant. PERA staff Lone Tree, and Westminster.
members cannot provide tax advice.
Your rights, benefits, and obligations
as a PERA member or benefit recipient
Send mail to PERA at
are governed by Title 24, Article 51
PO Box 5800
of the Colorado Revised Statutes,
Denver, CO 80217-5800
and the Rules of the Colorado Public
Employees’ Retirement Association, Forms and publications can be
which take precedence over any found on PERA’s website. Copies
interpretations in this booklet. can also be requested by calling
PERA’s Customer Service Center.
2/91 (REV 8-17) 10M
 Withholding Preference Form
Colorado Public Employees’ Retirement Association
PO Box 5800, Denver, Colorado 80217-5800
1-800-759-PERA (7372) • Fax: 303-863-3727 • www.copera.org

Your SSN

Deceased
Member/Retiree's SSN
(if you are not the member)

Complete this form and send to Colorado PERA at the address or fax number above if you are a PERA benefit recipient and want to set up or change your
income tax withholding. A PERA benefit recipient includes retirees, survivors, or disability retirees under the PERA and Denver Public Schools (DPS) benefit
structures. Correctly completed and signed forms received at PERA by the 15th of the month will be effective for that month. This form can also be completed
online at www.copera.org using your User ID and password.
» You must include both your Social Security number (SSN) and the deceased retiree or member’s SSN if you are receiving a PERA benefit as a cobeneficiary of
a deceased retiree or survivor of a deceased member.
» If you receive more than one PERA benefit, it is important to specify in the check boxes below to which account(s) these changes apply.
If you have different withholding preferences for each account, you must complete a separate form for each.
To which account(s) would you like your withholding preferences to apply? (Check all that apply)
PERA Benefit Structure Account(s): ‰ Retirement ‰ Cobeneficiary/Survivor ‰‰ Other:_____________________
DPS Benefit Structure Account(s): ‰‰ Retirement ‰‰ Cobeneficiary/Survivor ‰‰ Other:_____________________

Your Name of Deceased Member/Retiree, if applicable ________________________________________________________

Information Last First

Your Name____________________________________________________________________________________
Last First MI

Address_______________________________________________________________________________________
Street, Route, or Box Number City State ZIP Code

Daytime Telephone__( ________________________

) Email Address ____________________________________________________

Sign up for electronic delivery of PERA information? Yes ‰‰ No ‰

I understand that as a PERA benefit recipient, I am responsible for payment of income taxes, interest, and penalties if my federal or
state income tax withholding is not sufficient. I also understand that PERA cannot refund any taxes withheld in error.

Sign Here è Signature______________________________________________________________ Date __________________

Marital Status on Form W-4P: ‰‰ Single ‰‰ Married Number of allowances:__________

Federal Income If no instructions are given for your federal income tax withholding, PERA is required to withhold at the rate of a married individual
Tax Withholding claiming three allowances.
(Check one) 1. ‰ Do not withhold federal income tax. 3. ‰ Withhold $ ______________ from my monthly benefit
(must be a whole dollar amount).
2. ‰ Calculate my federal income tax withholding in 4. ‰ Withhold ______________ percent (%) from my
accordance with the IRS tax tables. monthly benefit (must be a whole percentage).
(Optional) Withhold the calculated amount
plus $ ______________.

Colorado State PERA does not withhold taxes for any other state. If your primary residence is outside the state of Colorado, you do not need to
Income Tax withhold Colorado state income taxes. If you have Colorado state income taxes deducted and move out of state, you must instruct
Withholding PERA to stop deducting these taxes.
(Check one) 1. ‰ Do not withhold Colorado state income tax. 3. ‰ Withhold $ ______________from my monthly benefit
(must be a whole dollar amount).
2. Calculate my Colorado state income tax withholding 4. ‰ Withhold ______________ percent (%) from my
using the Colorado tax tables: monthly benefit (must be a whole percentage).
‰ Without the pension exclusion ($20,000 or $24,000). See page 6.
(Optional) Withhold the calculated amount plus $ _________________ from my monthly benefit.
‰ With the pension exclusion ($20,000 or $24,000). See page 6.
2/91–with (REV 8-17)
(Optional) Withhold the calculated amount plus $ _________________ from my monthly benefit.