Asking for a Friend: Is My Monthly CalPERS or CalSTRS Pension Taxable?
If you’ve worked in California and you’ll soon be collecting a monthly CalPERS or CalSTRS pension (or maybe both if you established reciprocity), you might be wondering: How exactly will your pension be taxed? Will you need to worry about doing your own tax withholding? Do you really have to keep paying federal and state income taxes even though you’re retired?
Federal Taxes: Yes
Both CalPERS and CalSTRS pensions are subject to federal income tax. Your pension will generally treated as ordinary income and be taxed according to your federal tax bracket.
CalPERS and CalSTRS will send you a 1099-R tax form in January showing exactly how much pension income you made last year, and how much of that was taxable.
State Taxes: Depends Where You Live
If you live in California your CalPERS or CalSTRS pension is taxable at the state level.
If you live outside California it’ll depend on the laws of the state you reside in. Some states tax pensions, and others don’t. For example, nearby states Nevada and Washington do not collect state income tax, and therefore don’t tax pension income.
Tax Withholding Options
Federal: Taxes are calculated and withheld automatically by CalPERS and CalSTRS.
California: If you live in California, you can have CalPERS and CalSTRS withhold state taxes from your monthly benefit.
If you live outside California: Neither pension system will withhold state income taxes for other states, and if your state taxes pension income, you’ll need to make sure to pay these taxes yourself to avoid any penalties or interest.
Bottom line:
If you’re collecting a CalPERS or CalSTRS pension, you’ll pay federal income tax. Whether you pay state income taxes depends entirely on where you reside in retirement.
Have Questions?
Wondering about something money-related and wish someone else would ask it first?
Have a question you’re too shy to ask anywhere except online in “private” mode?
I’ve got you. Send me your anonymous “asking for a friend” question and I just might feature it in a future post.
Disclaimer: This information is for educational purposes only and doesn't constitute financial advice. Consider consulting with a fee-only financial planner for personalized guidance.
