How do I elect my tax withholding preferences?
If you are a registered myCalSTRS user, you can complete your elections online.
You may also complete the CalSTRS Income Tax Withholding Preference Certificate and mail it to us. Your new elections will take effect within 60 days after we receive the information.
If I do not elect a tax withholding preference, how will taxes be withheld from my monthly benefit payment?
If you do not elect a tax withholding preference, CalSTRS will still withhold federal and state taxes based on the following:
- Non-Rollover Eligible Distributions
- Federal withholding will be married with three allowances
- State withholding will be married with three allowances
- Eligible Rollover Distributions
- Federal withholding will be 20 percent
- State withholding will be 2 percent
What are my options for federal and state tax withholding?
Generally, the method and rate of withholding depends on whether:
- The payment is rollover eligible.
- The payment is delivered outside the U.S.
- You are a nonresident alien individual, a nonresident alien beneficiary, or a foreign estate.
Special withholding rules apply to payments outside the U.S. and payments to a foreign person.
Your tax withholding options also depend on your benefit type and whether the payment is eligible for rollover distribution.
If you are receiving a monthly benefit that is not eligible for rollover distribution, you may elect one or more of the following options:
- No federal tax withholding.
- Withholding federal income tax based on the tax table.
- An additional amount withheld from each benefit payment.
If you receive a distribution that is eligible for rollover but you do not roll it over directly to another qualified retirement plan or IRA, your payment is taxable.
The federal tax rate for an eligible rollover distribution is 20 percent. You may also elect an additional amount withheld. CalSTRS is required to withhold the 20 percent. You cannot opt out of federal tax withholding for eligible rollover distributions. CalSTRS will not withhold the 20 percent federal income tax for rollover eligible distributions transferred directly to an IRA or other qualified plan.
You have more flexibility with state tax withholding for eligible rollover distributions. State taxes will be 2 percent unless you elect one of the following options:
- No state taxes withheld.
- A flat tax amount.
Caution: There are penalties for not paying enough federal tax during the year either through withholding or estimated tax payments. See IRS Publication 505, Tax Withholding and Estimated Tax, at IRS.gov for more information.
How do I know if my benefit is rollover eligible?
Some payments from CalSTRS are “eligible rollover distributions.” This means that they can be rolled over to a qualified IRA or to an eligible employer plan that accepts rollovers.
CalSTRS payments cannot be rolled over to a SIMPLE IRA or a Coverdell Education Savings Account.
You cannot roll over a payment if it is part of a series of equal (or almost equal) payments that are made at least once a year and that will last for any of the following:
- Your lifetime (or a period measured by your life expectancy).
- Your lifetime and your beneficiary´s lifetime (or a period measured by your joint life expectancies).
- A period of 10 years or more.
Beginning when you reach age 70½ or retire, whichever is later, a certain portion of your payment cannot be rolled over because it is a “required minimum distribution” that must be paid to you under federal law.
CalSTRS will tell you what, if any, portion of your payment is not an eligible rollover distribution. For more information on these rules, see the CalSTRS publication, Tax Considerations for Rollovers
How do I calculate the amount of tax withholding?
To calculate the amount of tax withholding, use IRS Form W-4P, Withholding Certificate for Pension or Annuity Payments, available at IRS.gov.
If you are registered on myCalSTRS, you may estimate your tax withholding online.
How long will my election remain in effect?
Your income tax withholding preferences will remain in effect until you change them.
How often should I adjust my tax withholding?
Since your tax situation may change from year to year, you may want to review your withholding each year.
If I reside outside California, what is my tax withholding option?
Under federal law, the State of California cannot tax your benefit payments if you reside outside California.
If you do not live in California but think you may be liable for California state income tax, you may request CalSTRS to withhold state income taxes.
I receive two different benefits each month. Can I withhold taxes differently on each one?
If you receive different types of monthly payments from CalSTRS, you may elect a different tax withholding amount for each type of payment.
If you are registered on myCalSTRS, you may make these elections online.
You may also complete a separate Income Tax Withholding Preference Certificate for each payment type and mail it to CalSTRS.
If I want to make a change to my tax preferences, when will the change take effect?
When you submit the Income Tax Withholding Preference Certificate and mail it to us, the new elections will take effect within 60 days after we receive the information. If you change your tax withholding preferences on myCalSTRS, the request immediately replaces your existing tax withholding preference.
I made an election to have my taxes withheld based on the tax tables. Why are no taxes are being withheld from my benefit payment?
If you elect to have tax withholding based on the tax table, you might not have any taxes withheld from your monthly benefit. This will occur in cases where the monthly taxable allowance is below the minimum amount required for withholding based upon the tax table you have elected.
How will taxes be withheld from my quarterly supplemental payment?
Quarterly supplemental payments are made to some retired members and beneficiaries to maintain 85 percent of the purchasing power of their initial retirement benefit. All supplemental payments made after January 1, 2003, are taxed at the same tax preference as the monthly benefit if taxes are withheld based on the tax tables. There are three exceptions to this rule:
- If you are having taxes withheld from your monthly payment at a flat rate, no taxes will be withheld from your supplemental payment.
- If you are using the tax tables and have an additional flat amount withheld, only the tax table amounts will apply to the supplemental payment. No additional amounts will be withheld.
- If your quarterly supplemental payment falls below the minimum required for the tax table you elected, you may not have taxes withheld.
How are lump-sum distributions taxed?
Lump-sum distributions, including a refund of your contributions, are subject to special tax provisions.
For more information on these rules, see the CalSTRS publication, Tax Considerations for Rollovers.