More About Federal Taxes And Pensions

JANUARY 2000 - Most Commonly Asked Questions - Not
unexpectedly, our office has received numerous phone calls from members
about federal taxes on their pensions since our article on that subject
in the March Voice. We hope our answers, to some of the most commonly
asked questions, help you not only to complete your '99 tax return but
also to better plan for this year.

when calculating the tax-free portion of the pension, you include only
the actual amount of your contributions and not the interest earned
from the contributions. Be certain that the amount quoted by your
retirement board does not include interest.

when you receive your Form 1099R from the retirement board in the
future, check to see if the gross amount and the taxable amount are
different. If so, you should contact your board to see if they have
calculated the tax-free portion for you - and it's likely they did.

remember to contact the retirement board and post office if you are
away the first of the year. You can avoid any unnecessary delay in
obtaining your Form 1099R if you do this in advance.

if after preparing your 1999 taxes, you discover that you need more or
hopefully less federal taxes taken out, then contact your retirement
board as soon as possible so that a new federal tax withholding
certificate can be filed. Otherwise, the current amount will continue
to be withheld.

Lastly, a surviving
spouse may be entitled to a tax-free portion of their Option C pension.
For surviving spouses of Option C pensioners, who retired before
January 1, 1998, they can exhaust the total number of tax-free portions
that their deceased spouse was entitled to but unfortunately was unable
to use because of their death. For example, if the pensioner was
entitled to a tax free portion for 260 monthly payments but used only
200 before his death, the widow can continue to take the tax-free
portion on the first 60 monthly payments of her Option C pension.

whose spouses retired after December 31, 1997, have the tax-free
portion for their Option C pension calculated using a special chart
that combines the couple's ages when the deceased pensioner first
retired. Based upon the couple's combined age, the pensioner and, at
death, surviving spouse are entitled to a total number of monthly
payments. Once that total number is reached (i.e., 360 payments) then
the pension - whether it is the original or Option C pension at that
time - becomes fully taxable.