How Retirement Benefits Are Taxed

Your SCERS retirement benefit is considered taxable income by the federal government and the State of California. This section explains how your benefit is taxed. 

Federal Income Tax

Most SCERS retirees will owe federal income tax on their monthly benefit.

California State Income Tax

If you are a California resident, your SCERS benefit is also subject to state income tax. SCERS withholds California taxes only if you elect to do so.

If you live outside California, SCERS does not withhold state taxes for other states. However, you may still be responsible for reporting your SCERS benefit on your home state’s tax return.

Non-Taxable Contributions

Some SCERS members contributed to the system before tax laws changed in the early 1980s, or used after-tax dollars to pay for a service credit purchase. These after-tax contributions are not taxed again when paid back to you. 

If this applies to you:

• SCERS will spread the non-taxable portion of your contributions over your expected lifetime
• The remainder of your benefit will be taxed

This is automatically calculated for you. The breakdown appears on your Form 1099-R, issued each January.

Tax Planning Resources

SCERS does not provide personal tax advice. If you’re unsure how your retirement income affects your tax situation, consider:

• Consulting a certified tax preparer or financial planner
• Reviewing IRS Publication 575 (Pension and Annuity Income)
• Visiting the California Franchise Tax Board website for state-specific guidance

Some disability benefits are taxed differently than service retirement benefits, see the Disability While Working section for more information.