OPERS benefits and taxes
One of the recurring topics of concern to OPERS retirees and benefits recipients is how to manage their taxes.
While OPERS can provide general guidance on the impact of federal and state income tax withholding on benefits, retirees and benefit recipients should consult with their own tax advisor for specific information.
Many of the inquiries revolve around the distribution of 1099-R forms in January, and it’s often helpful to review guidelines for tax withholding and OPERS benefits.
If you are receiving monthly benefits, your benefit payment continues to be taxed at the same federal tax withholding status in effect when you received your first payment unless you have chosen to change your federal tax withholding status. You may choose to reduce or eliminate the amount of federal tax withheld, but you may be responsible for payment of estimated taxes. You may incur penalties under estimated tax rules, if there is not enough federal income tax withheld during the year.
In addition, OPERS will withhold state of Ohio income tax from benefit payments on a voluntary basis. If you are required to pay Ohio income taxes, you must determine the amount per month you wish to have withheld from your benefit payment. In order to make this determination, you should estimate your state tax liability for the current year. Remember that retirement credits available for state income tax should be taken into account when making any calculations.
In Ohio, OPERS benefits are subject to local school district income taxes. Retirees are responsible for these taxes, if their school district has an income tax. However, OPERS cannot withhold this tax from the benefit payment.
You can change your federal or state tax withholding on your pension benefit at any time through your online account. Or, you can update your federal income tax withholding preferences by completing a Withholding Certificate for Pension or Annuity Payments (Form W-4P). To make this change regarding state income tax withholding, fill out a Recipient’s Withholding Certificate for Ohio Personal Income Tax (Form IT-4P). OPERS will begin withholding state tax from your benefit the month following the receipt of the properly completed form. These forms are available at www.opers.org or by contacting us at 800-222-7377.
IRS guidelines are somewhat different for OPERS disability benefit recipients than for other benefit recipients. Additional information on the taxation of disability benefits and a more in-depth discussion of the tax treatment of all benefit payments may be found in the OPERS publication “Benefit Recipients’ Income Tax Guide,” which is published each tax year.
We annually make individual tax information available on our website before we mail the forms in late January. This feature of the OPERS online account can help members begin to file their taxes by reading the information online and printing it out.
There is more tax information, including help for those who have contributions that were previously taxed, in our Member Handbook.
If you have not registered for your online OPERS account, it’s easy and quick. Click on “Need an account?” via the link listed above, and follow the instructions.
We’ve created an online tool that can help you understand the 1099-R form. It can help you understand which parts of the form to use for your taxes, how to change your federal and state tax withholdings, and how to access and print your form.
Click on this link to view a Form 1099-R recorded tutorial.
Michael Pramik
Michael Pramik is communication strategist for the Ohio Public Employees Retirement System and editor of the PERSpective blog. As an experienced business journalist, he clarifies complex pension policies and helps members make smart choices to secure their retirement.
My problem is Social Security. Since I was a State worker, I do not receive all my SSA benefits. So I need to with draw from my investments. I have to pay taxes on the increased income and I have to pay additional taxes on with drawing from my investment. So in stead of double dipping with my SSA benefits I am DOUBLE taxed on using my investments.
It appears that there are pending mergers of major health care companies, I mention this in light of the Aetna purchase of Humana. What is the status of that purchase? If the purchase is completed, doesn’t that cause Humana’s plans to be subject to changes by Aetna?
Where, on the OPERS website, is the retiree blog where members would post concerns about healthcare changes to be found?
Madeline,
You can post comments on any blog you wish, just like you did for this one.
As for the proposed Aetna acquisition of Humana, that is expected to close in the second half of 2016, pending regulatory approval. Until then, each company will remain separate and independent and will operate as usual.
–Ohio PERS
Just a quick “heads-up” for those who are losing the OPERS-sponsored Express-Script-Medicare coverage. My wife is currently on a tier 5 drug for rheumatoid arthritis (humira) and will be turning 65 in October, We currently pay $60/month for this drug which has an annual retail price of $79,500. Our protection from that high cost has been our OPERS-sponsored drug plan and a small discount from Abbott Laboratories.
In checking prices/coverage for this drug under any and all available companies in Ohio, which we will be doing with OneExchange later this year, our out-of-pocket cost for this drug will be over $6000 a year. That’s a 10,000% increase over what we were paying. I believe all tier 5 drugs will have about the same copay. We, of course, will not be able to afford that amount and will have to look for alternative solutions.
But, like I said, just a heads up to all those out there who think this transition to the open market will be a pain-free experience.
Tom,
Thanks for your comment. We will be producing a blog and video on the effects of pharmaceutical prices later this summer. One item of note is that Medicare catastrophic limits kick in after participants pay $4,700 in out-of-pocket expenses. That means they pay only a small coinsurance amount, or copayment for covered drugs, for the rest of the year.
–Ohio PERS
True . . .we would be in and out of the “donut hole in February, then “catastrophic coverage” kicks in and we’d be responsible for 5 percent of the retail cost, which is about $330 a month . . . Still unaffordable when the rest of our prescription and premium costs are added on. I know OPERS will have little or no control over this as we enter the open market, but advice or consideration for those of who find ourselves in this situation is greatly appreciated.
I appreciate this comment as I have been diagnosed with RA and have had to consider disability retirement. Hearing that I would lose over $50,000 a year in income (with almost 21 years of service,) which in essence means I would lose my home, was hard enough. Reading this information (I am currently on Enbrel), quite frankly, scares me! How is it that we have become a society that finds it acceptable to take the money of hard working Americans, and God forbid if they become sick, reduce their income into near poverty levels and barely cover their medical expenses??!!! Yet we provide shelter, food and free medical care (on top of cable, internet and cell phones) to felons and people who are just down right lazy and do not work! Yet nobody says a word……
I began to receive disability benefits in 2007 (9 years) with 20.249 years of service credit. So even though it does not appear that I would be returning to service, I am penalized tax-wise because the disability benefit is not converted to a regular retirement benefit.
It would seem like that would be logical, since if it were it not for going onto disability, I would now be approaching a 30 year OPERS employment under which I would have been able to retire based on service.
But, due to my younger age, I remain classified under disability benefits instead of service retirement for another 12 years. Costing me money in federal taxes and OPERS in costs for third-party MMRo to re-evaluate.
Currently drawing a pers disability since 2004. Is this taxable to the state of ohio?
It depends. OPERS has two disability programs: the Original Plan and the Revised Plan. Enrollment in either plan is based on when you became an OPERS member.
For Original Plan Benefit Recipients, those hired before 1992, the benefit payment is fully taxable until minimum retirement age, at which time a specified dollar amount, representing the return of taxed contributions, is provided on a monthly tax-free basis. Law enforcement and public safety officers participating in the Traditional Pension Plan who are disabled due to an on-duty injury or illness receive a portion of their disability benefit payments tax-free.
For Revised Plan Benefit Recipients, the benefit payment is fully taxable as long as it is received. Law enforcement and public safety officers participating in the Traditional Pension Plan who are disabled due to an on duty injury or illness receive a portion of their benefit payments tax-free.
If you have additional questions, please call us at 1-800-222-7377.
Julie, OPERS
My husband paid into OPERS in 2018. I am having trouble doing our federal tax return. Is there any assistance available?
Please call us at 1-800-222-7377 and a member of our staff can answer your questions about your husband’s benefit. We encourage you to reach out to a tax professional with questions about your federal tax return.
Julie, OPERS
Hello, Ohio PERS Benefit Manager:
I would like to increase Federal tax and Ohio State Tax withholding amount for 2020. Please send this form to me at the soonest. Thank you
William Yeh
William,
You can access those forms on the OPERS website, opers.org. Click on the Forms & Documents link in the box labeled Forms & Reports, then search under “Tax Withholding.” You can fill out the forms and submit them online.
Julie, OPERS
My client is an OPERS retiree whose gross OPERS annual 1099-R amount is less than $6,000. My client is a resident of another state. What is the threshold for filing an Ohio income tax return?
David,
If you type “threshold for filing an Ohio tax return” in your Internet browser, the answer is given.