Contributions made by Hennepin County and all investment earnings associated with those contributions are subject to federal and state income tax the year in which the shares are redeemed and withdrawn from the account.

Contributions the employee makes to the plan are taxed when deducted from the paycheck; therefore, are not taxed when the shares are redeemed and  withdrawn. However, investment earnings associated with employee contributions are subject to federal and state income taxes the year in which they are withdrawn.
 

Taxation of a withdrawal

  • Federal withholding
    The taxable portion of the withdrawal is taxed at a flat rate of 22%.

    The Hennepin County 1% Supplemental Retirement Plan follows the tax reporting rules consistent with a non-qualified deferred compensation plan. You cannot request an alternate federal tax withholding rate.
     
  • State withholding - Minnesota residents
    The default withholding rate is single and zero allowances (regardless of marital status). We assume Minnesota residency if address of record is in Minnesota. To choose an alternate withholding rate or no withholding, complete a Form W-4MNP and submit to MSRS with the redemption form. The W-4MNP form is available to download on the MN Dept of Revenue website.
     
  • State withholding - Resident of state other than Minnesota
    If employee resides in a state that mandates state income tax withholding, it will be withheld on the taxable portion of the distribution at the required rate. If employee resides in a state that does not mandate state income tax withholding, no state taxes will be withheld from the distribution.

 

Tax reporting

  • If payment is made to the participant (employee), MSRS will report tax information for a withdrawal on an IRS Form W-2. The tax form will be mailed by January 31 of the year following the withdrawal.
     
  • If payment is made to a surviving spouse or estate after the death of the participant (employee), MSRS will report tax information on a Form 1099-MISC. The tax form will be mailed by January 31 of the year following the withdrawal.

MSRS retirement representatives are not tax advisors. If you have questions about tax reporting or withholding, contact your tax advisor, an IRS district office, or the Minnesota Department of Revenue at 651-296-3781 or 1-800-652-9094. For teletypewriter users or telecommunications-device-for-the-deaf users, call the Minnesota Relay Service at 1-800-627-3529 and ask to be connected to Revenue's Taxpayers' Assistance Office at 651-296-3781.