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SERS outlines federal and Illinois withholding options for retirees
Summary
SERS staff explained federal withholding options using the W‑4P, how retirees can specify flat dollar or percentage withholdings, and clarified that Illinois generally does not tax retirement benefits.
A staff member for the State Employees Retirement System advised retirees that federal tax withholding on pension payments is controlled by IRS Form W‑4P and that SERS can apply withholding only according to what is on file.
The presenter said Illinois does not tax retirement but warned that pensions are subject to federal income tax and that retirees should consult a tax preparer for liability questions: “Illinois does not tax retirement, but your pension is federally taxable,” the presenter said.
SERS demonstrated examples using the W‑4P calculator on the member services account. In one example, a retiree with a $5,000 monthly pension who selected single status had federal withholding of $455.04. In a second example the retiree added an extra $500 of withholding (entered as a flat amount on line 4(c)), which increased total withholding to $955.04.
The presenter reviewed alternatives retirees can use on the W‑4P: leave step boxes blank and specify a flat dollar amount on the signature line, or write a percentage (the presenter used 15% as an example). SERS staff said they can help members fill out the form but cannot provide tax advice on how much to withhold.
State withholding: SERS can withhold Illinois taxes only by request (the Illinois state withholding form referenced in the workshop was cited as “3965” in the presentation). SERS cannot remit tax withholding to other states; members who move out of Illinois were advised to contact the revenue agency of their new state to learn whether that state taxes retirement and how to have taxes withheld.
Signature requirements: the presenter repeated that SERS will not accept electronic signatures on tax forms; paper forms must be printed, signed and mailed to SERS for processing.
The presenter recommended consulting a qualified tax preparer and using the W‑4P calculator in the member services account to determine appropriate withholdings before submitting forms.
