The portion of your pension attributable to Government contributions is subject to income taxes. Under the current law, taxes are required to be withheld starting with your first pension payment. In accordance with the Internal Revenue Code, Section 3405, applicable to the Virgin Islands, all annuities are taxable from the onset. Failure to complete a Form W-4P, which indicates the annuitants decision regarding tax withholdings, will result in GERS treating the annuitant (retiree) as a married individual claiming 3 withholding exemptions. The amount of tax you pay is based on a prorated portion of the Government-paid portion of your pension and your filing status.
Be sure to complete tax withholding forms at the time you apply for your pension so that the correct deductions can be made. Click here for the 2010 Form W-4P Withholding Certificate for Pension or Annuity Payments.
The 1099-R is a tax form reporting a taxpayer's distributions from pensions, annuities, IRAs, insurance contracts, profit-sharing plans and/or retirement plans. GERS mails this form to all its retirees by January 31 of each year. Retirees are required to attach a copy of Form 1099-R to his or her tax return.
Understanding taxes can be a little confusing. Therefore, we suggest that you consult a tax professional to assist you with preparing your taxes.