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Indiana Public Retirement System

Indiana Public Retirement System (INPRS) > My Fund > Police and Firefighters > Police and Firefighters Member Handbook: Taxation of Retirement Benefits Police and Firefighters Member Handbook: Taxation of Retirement Benefits

When you retire, you will be taxed on all of the benefit payments you receive. Your "tax basis" portion will not be taxed. The tax basis is the 6 percent member contribution that was taxed when the contribution was paid into the plan. “Picked up” contributions are not included in tax basis because they are not considered income when the contribution is made.

Over a pre-determined number of payments, you may recover your non-taxable amount from each benefit payment. Your recovery amount is based on your age at the time your benefits start. The schedule for repayment is set by IRS regulations. After all the non-taxable amounts have been left out of your benefit payments, 100 percent of the remaining payments will be considered taxable income. Each year, the Fund will provide you with a 1099-R form. You will use this form to report the taxable and non-taxable (if any) portion of your benefits.

More information about tax basis is in our FAQs, here.

Make sure to complete the tax withholding forms when you apply for 1977 Fund benefits.

Tax Withholding

INPRS must withhold income taxes on distributions. INPRS must also withhold federal taxes on monthly payments. You may choose not to have taxes withheld. Make sure to complete the tax withholding forms when you apply for benefits.

The tax rules are complex. If you would like more information, please refer to IRS Publication 575. If you need more help, you should contact your local IRS office or a tax consultant.

Section Eight: Disability Benefit Terms