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Tax Information FAQ's

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  1. Are my employee contributions tax deferred?
  2. Do I have to pay taxes on the amount received if I take a refund of my contributions?
  3. Once I retire, is my monthly retirement allowance subject to federal or state income taxes?
  4. Does KRS withhold federal and state income taxes from my monthly retirement allowance check?
  1. Are my employee contributions tax deferred?
    All mandatory payroll deducted contributions after August 1, 1982, are before-tax contributions. This means the contributions are withheld from employees' gross pay before state and federal taxes or FICA are withheld. Payments for service purchases, repayments of refunds, and payment of omitted contributions may be made with after-tax contributions or before-tax contributions depending upon the payment method used to purchase the service credit.
  2. Do I have to pay taxes on the amount received if I take a refund of my contributions?
    If you elect to receive a direct payment of your contributions, KRS is required to withhold 20% for federal income taxes. The amount withheld is not a penalty tax and will apply toward your federal tax liability for the year in which the refund was issued. Additional taxes due to age or other factors may also apply if you receive a direct payment. If you elect to rollover the funds into another qualified plan, the payment will not be subject to federal income taxes at the time of withdrawal.
  3. Once I retire, is my monthly retirement allowance subject to federal or state income taxes?
    Monthly benefits are subject to federal income tax provisions. In addition, if you are receiving a monthly benefit payable from the KERS Excess Benefit Plan, CERS Excess Benefit Plan or SPRS Excess Benefit Plan, this portion of your benefit will be treated as earned income and subject to payroll taxes, which may include FICA and Medicare taxes.

    All benefits attributable to service earned before December 31, 1997, are exempt from Kentucky state income tax. Effective January 1, 1998, retirement income from all sources including KERS, CERS and SPRS benefits, as well as income from private pensions, IRAs, Deferred Compensation, may be excludable up to a cap adjusted for inflation (see Schedule P in the Kentucky income tax forms for the exclusion amount and calculation).
  4. Does KRS withhold federal and state income taxes from my monthly retirement allowance check?
    When you retire, you are required to complete a Form 6017, Federal Income Tax Withholding Preference For Periodic Payments, to designate the amount you wish to be withheld from your monthly retirement allowance for federal income tax purposes. You may change your federal income tax withholding at any time by completing a new Form 6017, Federal Income Tax Withholding Preference For Periodic Payments.

    The retirement office does not withhold Kentucky State income taxes from your monthly retirement allowance. However, you may be liable for state income taxes on the benefits received during the year. In order to determine state income tax liabilities on your monthly retirement allowance, you should contact a qualified tax professional.

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