Taxes on your TCRS money in Tennessee

Is a TCRS pension taxable?

Short answer: your monthly TCRS benefit may be subject to federal income tax when it's paid, because your contributions went in before tax. TCRS sends a 1099-R by January 31. A refund has 20% of the taxable part withheld for federal tax, and a 10% penalty may apply under 59½. Legacy Member Guide p. 3, p. 5, p. 8; Retirement Checklist p. 4 (PDF page); Separation from Service guide p. 3; TCRS Special Tax Notice, PDF p. 3, Will I owe State income taxes?

The size of the taxable check depends on the formula and the payment option you choose; try the Legacy example in the calculator to see a monthly amount.

Your monthly benefit

TCRS contributions are pre-tax. Retirement benefits may be subject to income tax when paid; the 1099-R is in Self-Service and mailed by January 31. Refunds: 20% of the taxable portion withheld for federal income tax, and a 10% early withdrawal penalty may apply under 59 1/2. The TCRS special tax notice says it does not describe state or local income tax rules; the sources say nothing about Tennessee state tax on TCRS benefits. Legacy Member Guide p. 3, p. 5, p. 8; Retirement Checklist p. 4 (PDF page); Separation from Service guide p. 3; TCRS Special Tax Notice, PDF p. 3, Will I owe State income taxes?

All TCRS contributions are deducted pre-tax. Contributions made on or before December 31, 1987 were post-tax. Legacy Member Guide p. 3, footnote 1

After you retire, you change your federal tax withholding (and address and direct deposit) in Self-Service at MyTCRS.tn.gov. Retirement Checklist p. 4 (PDF page)

Does Tennessee tax it?

The TCRS sources don't address Tennessee state income tax on benefits; the special tax notice says it covers only federal rules. TCRS Special Tax Notice, PDF p. 3 We don't fill that gap from memory; check with the Tennessee Department of Revenue or a tax professional.

A refund

On separation a member may refund their own contributions and interest (employer contributions are not refundable); doing so ends TCRS membership and forfeits all benefits. Teachers must wait four months after separation unless dismissed for budget reasons, paid on a continuous 12-month basis, or moved out of Tennessee (file a Waiver of Refund Waiting Period form). 20% of the taxable portion is withheld for federal income tax. Legacy Member Guide p. 8, TCRS Refunds Following Separation More on leaving teaching.

Rolling over a refund

Monthly payments over your life (or yours and a beneficiary's) can't be rolled over. A refund can be: directly to an IRA or employer plan, or within 60 days of receiving it. TCRS Special Tax Notice, PDF p. 1-2, How do I do a rollover? How much may I roll over?

Without a direct rollover, TCRS must withhold 20% for federal income tax. To roll over the whole amount in a 60-day rollover, you have to make up that 20% from other money. TCRS Special Tax Notice, PDF p. 1-2

When the 10% penalty doesn't apply

The 10% additional tax on early distributions doesn't apply to payments after you leave service in or after the year you turn 55, to lifetime payments in equal amounts, or to payments due to disability or after death, among other exceptions. TCRS Special Tax Notice, PDF p. 2

From the sources

• TCRS contributions come out pre-tax, and benefits may be taxable when paid. TCRS sends a 1099-R by January 31.Legacy Member Guide p. 3, p. 5; Retirement Checklist p. 4

Questions