Federal income tax on monthly benefit

Your retirement benefit is subject to federal income taxes.
Exception: A portion of your benefit is not taxable if:

  • Payroll deductions were contributed to the plan before January 1983.

  • Voluntary payments were made to the plan to obtain retirement credit (such as for a leave of absence) using after-tax  monies (for example, a personal check or money from a Roth IRA account).

Federal law allows you to exclude the portion of your monthly benefit that is not subject to income taxes until the excluded amount equals the taxes you already paid. MSRS calculates the number of months to which the exclusion applies and reports the remaining amount to you on Form 1099-R. For federal tax questions, contact the IRS at 1-800-829-1040.

State income tax on monthly benefit payment

You must pay state income taxes on the portion of your monthly benefit that is subject to federal taxes. Exception: some states do not require state income tax withholding.

At your request, MSRS can withhold Minnesota state taxes from your monthly benefit. We are unable to withhold state taxes for residents of any other state.

To start, stop, or change income tax withholding

If you do not provide tax withholding instructions (default options)

  • Federal tax withholding: MSRS is required by the IRS to withhold taxes based on the default option, which is married with three allowances (regardless of your actual marital status). 

  • Minnesota state tax withholding: no state tax is withheld (we cannot withhold taxes for any state but Minnesota).

Tax form 1099-R sent to you by January 31

Annually, by January 31, MSRS will mail you a 1099-R tax statement to report the total benefit payments you received during the previous tax year, the amount that is taxable income, and the amount withheld for federal and/or state income taxes, if any. The 1099-R is also available online.

For further information about tax withholding

Call 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.