Iowa Administrative Code › Agency 701 - Revenue Department › Title IV - Individual Income Tax › Chapter 302 - Determination of Net Income › Rule 701-302.50 - Computing State Taxable Amounts of Pension Benefits From State Pension Plans

Current through Register Vol. 47, No. 3, July 24, 2024
For tax years beginning on or after January 1, 1995, a
				  retired member of a state pension plan, or a beneficiary of a member, who
				  receives benefits from the plan where there was a greater contribution to the
				  plan for the member for state income tax purposes than for federal income tax
				  purposes can report less taxable income from the benefits on the Iowa
				  individual income tax return than was reported on the federal return for the
				  same tax year. This rule applies only to a member of a state pension plan, or
				  the beneficiary of a member, who received benefits from the plan sometime after
				  January 1, 1995, and only in circumstances where the member received wages from
				  public employment in 1995, 1996, 1997, or 1998, or possibly in 1999 for certain
				  teachers covered by the state pension plan authorized in Iowa Code chapter 294
				  so the member had greater contributions to the state pension plan for state
				  income tax purposes than for federal income tax purposes. Starting with wages
				  paid on or after January 1, 1999, to employees covered by a state pension plan
				  other than teachers covered by the state pension plan authorized in Iowa Code
				  chapter 294, contributions made to the pension plan will be made on a pretax
				  basis for state income tax purposes as well as for federal income tax purposes.
				  However, in the case of teachers covered by the state pension plan authorized
				  in Iowa Code chapter 294, contributions to the pension plan on behalf of these
				  teachers on a pretax basis for state income tax purposes may start after
				  January 1, 1999.
For example, in the case of a state employee who was covered
				  by IPERS and had wages from covered public employment of $41,000 or more in
				  1995, that person would have made posttax contributions to IPERS of $1,517 for
				  state income tax purposes for 1995 and zero posttax contributions to IPERS for
				  federal income tax purposes for 1995. The $1,517 in contributions to IPERS for
				  federal income tax purposes was made on a pretax basis and was considered to
				  have been made by the employee's employer or the state of Iowa and not the
				  employee. At the time this employee receives retirement benefits from IPERS,
				  the retired employee will be subject to federal income tax on the portion of
				  the benefits that is attributable to the $1,517 IPERS contribution made in
				  1995. However, this employee will not be subject to state income tax on the
				  portion of the IPERS benefits received which is attributable to the $1,517
				  contribution to IPERS for 1995.
This rule does not apply to members or beneficiaries of
				  members who elect to take a lump sum distribution of benefits from a state
				  pension plan in lieu of receiving monthly payments of benefits from the
				  plan.
The following subrules further clarify how the portion of
				  certain state pension benefits that is taxable for state individual income tax
				  purposes for tax years beginning on or after January 1, 1995, is
				  determined.
(1)
Definitions
				related to state taxation of benefits from state pension plan.
The
				following definitions clarify those terms and phrases that have a bearing on
				the state's taxation of certain individuals who receive retirement benefits
				from state pension plans:
a. For purposes of
				this rule, the terms "state pension," "state pensions," and "state pension
				plans" mean only those pensions and those pension plans authorized in Iowa Code
				chapter 97A for public safety peace officers, chapter 97B for Iowa public
				employees (IPERS), chapter 294 for certain teachers, and chapter 411 for police
				officers and firefighters. There are other pension plans available for some
				public employees in the state which may be described as "state pensions" or
				"state pension plans" in other contexts or situations, but these pension plans
				are not covered by this rule. An example of a pension plan that is not a "state
				pension plan" for purposes of this rule is the judicial retirement system for
				state judges authorized in Iowa Code section
				602.9101.
b. For purposes of this rule, "member" is an
				individual who was employed in public service covered by a state pension plan
				and is either receiving or was receiving benefits from the pension
				plan.
c. For purposes of this rule,
				"beneficiary" is a person who has received or is receiving benefits from a
				state pension plan due to the death of an individual or member who earned
				benefits in a state pension plan.
d. For purposes of this rule, the term
				"IPERS" means the Iowa public employees retirement system.
e. For purposes of this rule, the term
				"pretax," when the term is applied to a contribution made to a state pension
				plan during a year from a public employee's compensation, means a contribution
				to a state pension plan that is not taxed on the employee's income tax return
				for the tax year in which the contribution is made. The contribution is
				considered to have been made by the state or the employee's employer and not by
				the employee so this contribution is not part of the employee's basis in the
				pension that is not taxed when the pension is received.
f. For purposes of this rule, the term
				"posttax," when the term is applied to a contribution made to a state pension
				plan during a year from a public employee's compensation, means the
				contribution is included in the employee's taxable income for the tax year of
				the contribution and the contribution is considered to have been made by the
				employee. That is, the contribution is part of the employee's basis in the
				pension which is not taxed at the time the pension is received.