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Federal and State Income Taxes and Your Pension

Federal Income Tax

Annual Tax Statement - Form 1099-R

Every January IMRF will provide you with a 1099-R tax statement showing the gross amount of benefits you received the previous year. This form also will indicate the taxable portion of your pension as well as any federal income tax that may have been withheld from your payments. The information on this form should be used for filing your federal and state income tax returns.

With a Member Access account, you can get early access to your 1099-R and other important documents. Register today!

IMRF will use method shown on Certificate

IMRF will report the taxable amount of your pension on your 1099-R using the method indicated on your Certificate of Benefits.

Filing federal taxes

You must use Internal Revenue Service Form 1040 or Form 1040A, “U.S. Individual Income Tax Return,” when you file your annual federal tax return.

You cannot use Form 1040EZ.

In order to properly report your IMRF pension, report the total amount received on the line designated for pensions and annuities. This was line 16a on the 2009 Form 1040 or line 12a on the 2009 Form 1040A. The pension line of these forms have two boxes. “Box a” is for the gross amount of pension received, and “Box b” is for the taxable portion of your pension payments. If you need tax forms, go to the IRS website.

Are you under age 59-1/2 and continuing to work for your IMRF employer?

Member contributions to IMRF are considered tax-deferred as retirement savings. Most tax-deferred retirement savings are subject to a 10% early withdrawal tax when taken out of the retirement plan before the recipient is age 59-1/2. However, there is an exception to this early withdrawal tax for IMRF pension payments that begin no earlier than age 55 (age 50 for public safety employees)—if you have totally separated from service with your last IMRF employer.

If you do not separate from service with your last IMRF employer, and instead continue to work for this employer in a non-participating position while receiving your pension payments at the same time, you are not eligible for this exception. In this situation, you must pay the additional 10% early withdrawal tax on your monthly IMRF pension payments. You will be required to pay this additional tax until you reach age 59-1/2 or until you leave employment with your IMRF employer.

Please note: The above situation assumes that you have already contacted IMRF and verified that you could continue to work after retirement without your pension being suspended.

State Income Tax

Illinois state tax

Your pension is not subject to Illinois state income tax. Rules in other states vary. To find out if your pension is subject to state tax and how your pension income must be reported on your state income tax return, you can view IMRF's most current list. NOTE: Please check with that state’s department of revenue for the most up-to-date information before making a final decision.

Filing Illinois state income tax returns

Because your IMRF pension is not subject to Illinois state income tax, you should enter the federally taxed portion of your pension (from your Form 1099-R) as a subtraction on Form IL-1040, “Illinois Individual Income Tax Return.” This line is designated as retirement and Social Security income (line 5 on the 2009 IL-1040).

In order to show that your IMRF pension is subtractable, you must include a copy of page one of your US 1040 or 1040A form with your Illinois state income tax return. If you fail to attach a copy of the US 1040 or 1040A, your entry will not be allowed.

Please note: Even though you may have no other taxable income, the Illinois Department of Revenue requires that you file a return if you are an Illinois resident.

Form W-4P: Withholding Certificate for pension payments

Because pension payments are immediately taxable, you are required by the Internal Revenue Service to submit a completed Form W-4P to IMRF.This form is available to complete through your Member Access account.

Amount of withholding

IMRF is not in a position to offer tax assistance, and therefore, cannot determine the amount of withholding that is right for a particular member. If you are not sure how much money should be withheld from your pension payments in order to meet your federal tax obligation, you should talk with your tax consultant.

Withholding without Form W-4P

If you do not return Form W-4P to IMRF and your pension during 2015 exceeds $1,720 a month, IMRF is required by law to withhold an amount based upon the IRS tax tables. The amount withheld will be based on a married individual claiming three withholding allowances. If your monthly pension payments during 2015 are $1,720 or less and you have no withholding request on file, no federal tax will be withheld. The dollar amount ($1,720) will be adjusted each year by the IRS.

Because payments by IMRF are exempt from Illinois state income tax, IMRF will not honor any request to withhold state tax (for any state) from your payments.

If you have questions regarding IMRF, Communicate with Us.

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IMRF Online provides a brief summary of IMRF benefits and the adminstration of those benefits. IMRF members' and employers' rights and obligations are governed by Article 7 of the Illinois Pension Code. Statements in these publications are general, and the Illinois state law governing IMRF is complex and specific. If a conflict arises between information in these publications and the law, all decisions are based on the law.

Copyright Illinois Municipal Retirement Fund

Page Last Updated by JC on 01.23.12