Federal Income Tax
Beginning with the first payment, STRS Ohio retirement benefits are taxable. STRS Ohio will withhold federal taxes from your benefits unless you direct otherwise. If federal taxes are not withheld, you will be responsible for filing federal quarterly estimates.
If you paid taxes on some of your contributions, a small percentage of your benefit will be tax-free until your taxed contributions are exhausted. For example, if you paid taxes on $25,000 of contributions and the IRS determines these contributions are to be spread over 25 years, $1,000 of your retirement benefit will be tax-free for the first 25 years of your retirement. Information regarding any amount excludable from tax will be sent to you after your retirement account is finalized and will be reflected on your 1099-R form.
Under federal tax laws, a Partial Lump-Sum Option Plan (PLOP) payment that is eligible for rollover, but is paid directly to you instead, is subject to a mandatory 20% federal tax withholding. In addition, you may be subject to a 10% penalty for early withdrawal. This penalty does not apply if you withdraw the lump sum after you reach age 59-1/2, or you have separated from service and have taken payment in or after the year in which you turned age 55.
Ohio Income Tax
The taxable portion of a retirement benefit or a PLOP payment paid directly to you is subject to Ohio income tax for Ohio residents. On request, we will withhold Ohio income taxes.
Income Tax — Other States
If you are a resident of another state, your state tax liability is governed by the laws in that state. STRS Ohio cannot withhold tax for states other than Ohio.
Local or Municipal Taxes
STRS Ohio retirement benefits are exempt from local or municipal taxes in Ohio.
School District Income Tax
STRS Ohio retirement benefits may be subject to local school district income taxes in Ohio. Some districts in Ohio have a provision where the school district income tax applies to earned income only. School district income taxes are not withheld by STRS Ohio unless the benefit is affected by a Qualified Excess Benefit Arrangement (QEBA). STRS Ohio informs members who are affected by a QEBA.
Following the end of the calendar year, benefit recipients receive a 1099-R form for monthly benefits showing “annual gross benefits” and “taxable amount” as computed by STRS Ohio.
If you elect a PLOP payment, a 1099-R form will be mailed to you in January of the year following your PLOP payment.
For more details about taxation of benefits, contact the Internal Revenue Service, the Ohio Department of Taxation or a qualified tax consultant. STRS Ohio cannot provide tax advice.
Important Tax Considerations for Lump-Sum Withdrawals
If you choose to withdraw your STRS Ohio account, there are important tax implications.
If you choose to have your withdrawal paid directly to you:
- Your payment will be taxed in the year it is issued.
- STRS Ohio will withhold federal tax at a rate of 20%.
- If you receive the payment before age 59-1/2, you may have to pay a 10% tax penalty for an early withdrawal.
You may roll over your withdrawal amount to an eligible retirement account that will accept your rollover and:
- Your payment will not be taxed in the current year and no taxes will be withheld.
- The funds rolled over will be taxed when removed from the account to which they were deposited.
Beginning in the year you reach age 70-1/2 or terminate employment, whichever is later, a certain portion of your payment cannot be rolled over because it is a “required minimum payment” that must be paid to you. STRS Ohio can tell you if your payment includes amounts that cannot be rolled over.
There are other tax implications if you withdraw your STRS Ohio account. Review our brochure titled Account Withdrawal and consult a professional tax advisor for more information. STRS Ohio cannot provide tax advice.