9.10 C. Tax Deferred Treatment of Member Contributions

IMRF member contributions are not subject to federal income tax until they are returned to the member or to the member’s beneficiary(ies) as a separation refund, pension, or death benefit.

This postponement of federal income tax is achieved by treating the 4.5% (7.5% SLEP or 7.5% ECO) IMRF member contributions as if ”employer paid.” The terminology of this tax treatment often leads to confusion. Because the Internal Revenue Code refers to this tax deferral as ”employer pickup,” some individuals assume that the employer is paying the contributions. This assumption is incorrect. The contributions are not paid by the employer but are deducted from the member’s gross salary.

This special tax treatment is provided for under Internal Revenue Code Section 414(h). The member contributions are designated ”employer pickup” only for federal income tax deferral.

Currently Illinois income tax law follows the federal rules regarding the 414(h) tax deferral. In other words, taxable wages are reduced by the IMRF member contributions.

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