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Additional tax information FAQ

The IRS released a revised Form W-4P (Withholding Certificate for Periodic Pension or Annuity Payments) and a new Form W-4R (Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions) that include substantial changes to the federal tax withholding elections available, as well as changes to the calculation CalSTRS performs to determine the amount to be withheld, as of January 1, 2023.

A significant change to the W-4P form is that filers will no longer be able to adjust their withholding by electing a specific number of withholding allowances. The IRS now offers new input fields for increasing or decreasing the amount to withhold, including fields for tax credits and deductions.

CalSTRS members and beneficiaries who already receive ongoing payments and who do not wish to make changes to their federal tax withholding elections are not required to file a new form.

2023 federal tax withholding changes

Why are federal tax withholding elections changing? 

The federal Tax Cuts and Jobs Act of 2017 changed the way income tax is calculated. Among the changes is an increased standard deduction and removal of the dependent exemption. While the IRS did not immediately change procedures for calculating federal income tax withholding to coincide with the removal of the dependent exemption, which withholding allowances were tied to, it is doing so now.

How is the new federal tax withholding election form for periodic payments different from the prior form? 

Previously, federal tax withholding calculations for non-rollover eligible periodic payments were based on the filing status (married or single) and number of withholding allowances reported on your federal tax withholding election form. The new calculation allows an additional filing status of “head of household” and discontinues the use of withholding allowances. It also allows new fields for adjusting the amount to be withheld by incorporating other income, deductions and tax credits into the calculation.

While the new form and calculation are more complex, they more accurately approximate the amount of tax due at the end of the year when completed correctly.

How is the new federal tax withholding election form for non-periodic (lump-sum) and rollover eligible periodic payments different from the prior form? 

Previously, federal tax withholding for non-periodic (lump-sum) and rollover eligible periodic payments was either 10% (non-rollover eligible, non-periodic payments) or 20% (all rollover eligible payments, whether periodic or non-periodic). The 10% withholding for non-rollover eligible non-periodic payments was optional and the 20% withholding for all rollover eligible payments was mandatory.

While both rules still apply, you may also designate a specific percentage higher or lower than the default rate, as long as it is at least the mandatory percentage when it applies.

Am I required to file a new tax withholding election form even if I do not intend to change my tax withholding elections? 

No, if you are receiving ongoing benefits and you do not wish to change your withholding elections, you are not required to submit a new tax withholding election form.

We will continue to withhold federal income tax from your benefit payments based on the elections we have on file, including the number of withholding allowances.

If I make no changes to my federal tax withholding elections, will my federal tax withholding amount stay the same? 

If you make no changes to your federal tax withholding elections, we will continue to use the marital status, number of withholding allowances, and additional withholding amount we have on file to calculate your withholding. However, the actual amount withheld may change due to a difference in rounding when we transition from the current monthly tax withholding tables to the new annual tax withholding tables.

Your federal tax withholding may also change when tax tables are updated annually or when your benefit amount changes.

Am I allowed to update my filing status or additional amount to be withheld without changing the number of withholding allowances I claim? 

Withholding allowances are no longer used to calculate federal tax withholding. Accordingly, CalSTRS’ new Form AD-0908 (Income Tax Withholding Preference Certificate) does not contain a field for withholding allowances as they are not part of the new calculation method.

When you file a new federal income tax withholding election form, any existing withholding allowances will cease to be used, and your federal tax withholding will be calculated using the new method. Use the instructions and worksheets on IRS Form W-4P (Withholding Certificate for Periodic Pension or Annuity Payments) at irs.gov to assist you in completing your Income Tax Withholding Preference Certificate form.

When will the new form and calculation take effect? 

Any new benefits beginning on or after January 1, 2023, are subject to the new form and calculation. Also, any changes in federal tax withholding elections that take effect on or after that date must use the new form fields and calculation method.

We expect to make the new form available in December 2022.

When is the deadline to submit changes using the existing format that includes withholding allowances? 

We plan to roll out the new tax withholding functionality in early December 2022. The exact cut-off date for updates using the old format is yet to be determined and will vary depending on whether changes are submitted online through myCalSTRS or by mail using a paper form.

We expect to continue accepting changes using the existing format, including withholding allowances until December 2022.

When will I be able to make elections using the new format? 

You may update your tax withholding using the new format via myCalSTRS beginning December 9, 2022.

We expect the new Income Tax Withholding Preference Certificate to be available at that time as well.

Where can I find more information about these changes? 

See IRS Publication 15-T at irs.gov for more information.

Required minimum distribution

How much of my retirement benefit is considered a required minimum distribution? 

Under federal law, the full amount of any lifetime annuity benefit distributed from a defined benefit plan on or after the member’s required beginning date is considered a required minimum distribution. Your required beginning date is April 1 of the year following the later of either the calendar year in which you:

  • Cease working in a CalSTRS-covered position.
  • Reach your required minimum distribution age.
BirthdateRequired minimum distribution age
June 30, 1949, and prior70½
July 1, 1949, through December 31, 195072
January 1, 1951, and later73

If you choose to receive your retirement benefit as a lump-sum distribution and elect a nontaxable rollover to another retirement account, we’ll calculate the non-rollover eligible required minimum distribution amount based on the year in which you reach your required minimum distribution age or retire, not April 1 of the following year.

How does CalSTRS calculate the required minimum distribution to determine the maximum amount allowed for a nontaxable rollover distribution? 

We use the taxable account balance as of December 31 of the year prior to the distribution and the uniform lifetime table published in federal regulations to determine the required minimum distribution for one year. We then multiply that amount by the number of years for which a required minimum distribution is due. The uniform lifetime table was updated in 2022, so if your required minimum distribution period includes years prior to 2022, the required minimum distribution for those years is calculated using the prior table.

I recently rolled over a lump-sum payment from CalSTRS to another qualified plan or IRA. Did CalSTRS distribute my required minimum distribution for this year? 

If you elect a 100% rollover of a CalSTRS distribution in the year you’ll reach your required minimum distribution age or later, we will calculate and pay your required minimum distribution directly to you and roll over any remaining funds.

Am I required to receive a required minimum distribution if I am still working? 

No. For defined benefit plans, including the CalSTRS Defined Benefit, Defined Benefit Supplement and Cash Balance Benefit programs, the required beginning date for a required minimum distribution is based on the later of either the year in which you reach your required minimum distribution age or the year in which you stop working in CalSTRS-covered employment. If you’re actively working in a position covered by CalSTRS or any other qualified California public retirement program, you’re not required to receive distributions until you cease covered employment.

I am no longer working in a CalSTRS-covered position, but I have not applied for retirement or another distribution from CalSTRS. What is the deadline for me to take a distribution? 

The required beginning date for a defined benefit plan participant is April 1 of the year following the later of either the calendar year in which you:

  • Cease working in a CalSTRS-covered position.
  • Reach your required minimum distribution age.
BirthdateYour required minimum distribution age
June 30, 1949, and prior70½
July 1, 1949, through December 31, 195072
January 1, 1951, and later73

If you receive a payment in the form of a lump-sum, refund or termination benefit, and you elect a nontaxable rollover, we’ll calculate the non-rollover eligible required minimum distribution based on the year in which you reach your required minimum distribution age or retire, not April 1 of the following year.

How does the required minimum distribution rule affect a period-certain annuity? 

Under federal regulations, any distribution from a defined benefit plan in the form of an annuity ceases to be eligible for rollover beginning January 1 of the year in which the plan participant will reach their required minimum distribution age. You may not elect a rollover of a period-certain annuity once you reach the year in which you’ll reach your required minimum distribution age.

If you elected a rollover of a period-certain annuity before you reached your required minimum distribution age, the rollover will end, and payments will be made directly to you beginning January 1 of the year in which you’ll reach your required minimum distribution age.

Does CalSTRS automatically withhold federal and state income taxes for required minimum distribution payments? If so, what percentage is withheld? 

We calculate benefits according to the benefit program formulas prescribed in the Teachers’ Retirement Law, which are independent of the required minimum distribution calculation. However, if you elect a rollover of more than is allowed by the federal required minimum distribution law, we’ll limit your rollover to the amount allowed and pay you the difference, which represents the required minimum distribution. In those cases, the federal tax withholding will be based on the mandatory rate for rollover eligible distributions, which is 20%. You may elect a higher percentage if you choose. We withhold 2% California tax unless you’re not a resident of California. If you live outside California, but expect to have California tax liability, you may elect to have California state tax withheld.

I did not apply for a distribution from CalSTRS before my required beginning date. Will CalSTRS withhold the excise tax on the required minimum distribution that was not taken timely? 

No. The 25% excise tax due on required minimum distributions not taken timely (50% for tax years prior to 2023) will be assessed by the IRS. See Instructions for Form 5329 at irs.gov for more information.

I am the surviving spouse of a CalSTRS member. May I defer distributions beyond the time when the account owner was subject to required minimum distributions? 

For required minimum distributions required to begin in 2024 or later, a surviving spouse who is the sole designated beneficiary of their spouse’s retirement account, the surviving spouse may elect to be treated as the employee for the purpose of the required minimum distribution law, including the amount allowed for rollover distribution. This election may be made in the survivor benefits distribution election and once made, cannot be revoked. This election may only be made if the required beginning date for the surviving spouse is later than that of the employee.

How do the required minimum distribution rules affect distributions from my CalSTRS Pension2® 403(b) or 457(b) account? 

For information regarding your Pension2 account, contact CalSTRS’ Pension2 administrator. More information is available at Pension2.com.

Additional tax information

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 single with no adjustments. State withholding will be married with three allowances.
  • Eligible Rollover Distributions: Federal withholding will be 20%. State withholding will be 2%.
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%. If you would like to designate a higher percentage, you may do so by completing an Income Tax Withholding Preference Certificate. You cannot opt out of federal tax withholding for eligible rollover distributions. CalSTRS will not withhold the 20% 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% unless you elect not to have state tax withheld.

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 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 within the first two years of the SIMPLE IRA or a Coverdell Education Savings Account.

You cannot roll over a payment if it’s 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 your required minimum distribution age or retire, whichever is later, a certain portion of your payment cannot be rolled over because it’s a required minimum distribution that must be paid to you under federal law.

BirthdateYour required minimum distribution age
June 30, 1949, and prior70½
July 1, 1949, through December 31, 195072
January 1, 1951, and later73

CalSTRS will let you know what portion, if any, of your payment is not an eligible rollover distribution. For more information, see the CalSTRS Tax Considerations for Rollovers publication.

Where can I find guidance to assist me in determining my tax elections? 

CalSTRS' Income Tax Withholding Preference Certificate and instructions are based on IRS Forms W-4P, W-4R, and EDD Form DE-4P. While the information and elections available in our form are substantively the same as those found in the IRS and EDD forms, our form is more specific to CalSTRS benefits. You may find information and instructions in the W-4P, W-4R, and DE-4P helpful when making your elections.

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? 

Because 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% 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.