Federal and State Income Taxes

Federal Income Tax

Annual Tax Statement - Form 1099-R

IMRF will send you a 1099-R tax statement every January. This statement shows:

• The gross amount of benefits you received the previous year. 
• The taxable portion of your pension.
• Any federal income tax that was withheld from your payments. 

This information should be used for filing your federal and state income tax returns. IMRF will report the taxable amount of your pension on your 1099-R using the method indicated on your Certificate of Benefits.

Your 1099-R statement will be available in your Member Access account before it is mailed to you. You can also view 1099-R statements from earlier years in Member Access.

Filing Federal Taxes

You must use Internal Revenue Service Form 1040 or Form 1040-SR when you file your annual federal tax return.

Federal tax withholding on retirement refunds

Certain types of contributions may be paid as a lump sum at retirement. If you receive a lump sum payout at retirement, you can “roll over” the taxable portion of the refund directly to an IRA or another qualified pension plan.

If you do not directly roll over the taxable portion of the refund, the law requires IMRF to withhold 20% on the following lump sums paid at retirement:

• Refunds of surviving spouse contributions plus interest if you have no eligible spouse
• Refunds of SLEP contributions plus interest if you do not qualify for a SLEP pension
• The interest on refunds of Voluntary Additional Contributions

You may apply the 20% to your tax liability for the year in which you received the payment. The actual amount you owe in taxes may be larger or smaller and will vary for individual members.

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

If you retire before 1/1/2021 and are under age 59-1/2

If you retire before 1/1/2021, are under age 59-1/2, and plan to continue working for the last IMRF employer you worked for before you retired, you should:

• Call IMRF immediately to make sure you aren't in violation of return to work rules
• Be aware that you may be required to pay an additional 10% early withdrawal tax on your monthly payments.

You must totally separate from service to qualify for an exception

Your IMRF pension qualifies for an exception to a 10% early withdrawal tax if you are at least age 55 when you retire (age 50 or with 25 years of service for public safety employees—for this purpose, a police officer, firefighter, emergency medical personnel, corrections officer, or forensic security employee) as long as you have totally separated from service with your last IMRF employer. If you 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. 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.

IMPORTANT! Change in rules if you retire after 1/1/2021

If you retire after 1/1/2021, you cannot start your pension and continue to work for ANY IMRF employer. Effective 1/1/2021, this violates separation from service rules and you cannot receive your IMRF pension in this situation. See IMRF's Working After Retirement web page for detailed information about these separation of service rules.

State Income Tax

Illinois State Tax

Your IMRF pension is not subject to Illinois state income tax. 

If your state of residence is other than Illinois, you should check with that state’s department of revenue to find out:

• If your pension is subject to state tax
• How your pension income must be reported on your state income tax return

IMRF will not withhold state income tax for any state outside of Illinois.

Filing Illinois State Income Tax Returns

You should enter the federally taxed portion of your pension (from your Form 1099-R) as a subtraction on Form IL-1040. This line is designated as retirement and Social Security income.

If you have no other taxable income, the Illinois Department of Revenue requires that you file a return if you are an Illinois resident.

Which state’s taxes are best if you are retired?

Laws covering the taxability of your IMRF Pension vary from state to state. The following list is only to be used as a guide. It is not tax advice. Tax laws are amended constantly and changes should be expected. Several states treat pensions from public employment different than other retirement income. Therefore you should consult with that state’s office or a tax professional for definite information on the tax laws in a particular state.

Form W-4P: Withholding Certificate for Pension Payments

You are required by the Internal Revenue Service to complete Form W-4P and return it to IMRF. The easiest and fastest way to do this is through your Member Access account.

Amount of Withholding

IMRF cannot offer tax advice. If you are not sure how much money should be withheld from your pension payments, you should talk with your tax consultant or visit the IRS website at www.irs.gov and enter the search term "withholding calculator".

Withholding Without Form W-4P

If you do not have withholding instructions on file, IMRF may be required to withhold an amount based upon the IRS tax tables:

• If you began receiving your IMRF pension payments before 2022, the amount withheld will be based on a married individual claiming three withholding allowances.
• If you began receiving your IMRF pension payments in 2022 or later, the amount withheld will be based on a single individual claiming zero allowances.

If you have additional questions, please talk with your tax consultant.