2021 IL Income Tax Brackets: Understanding Your Tax Obligations at Retirement

When retiring from the Illinois Municipal Retirement Fund (IMRF), it's essential to understand your tax obligations to ensure a smooth transition into retirement. This article will outline the key factors to consider regarding taxes on IMRF benefits, including income tax brackets and withholding.

Separating from Service and Taxes

If you retire before age 59-1/2 and plan to continue working for your former employer, you should be aware of potential early withdrawal tax implications. You may need to pay an additional 10% in federal income taxes on your monthly payments. It's crucial to contact IMRF immediately to ensure compliance with return-to-work rules.

Income Tax Brackets

IMRF benefits are subject to federal and state income taxes. The taxable amount will vary depending on individual circumstances, but you can apply a 20% reduction to your tax liability for the year in which you received the payment. For the 2021 tax year, Illinois has four federal income tax brackets:

* 10%: $0 to $9,875

* 12%: $9,876 to $40,125

* 22%: $40,126 to $80,250

* 24%: $80,251 to $164,700

* 32%: $164,701 to $214,700

* 35%: $214,701 to $518,400

* 37%: $518,401 or more

Understanding Your 1099-R Statement

IMRF will report the taxable amount of your pension on Form 1099-R using the method indicated on your Certificate of Benefits. This information should be used when filing your federal and state income tax returns. Your 1099-R statement will be available in your Member Access account before it is mailed to you.

Filing Your Tax Return

When filing your annual federal tax return, use Form 1040 or Form 1040-SR. You can also view previous year's 1099-R statements in Member Access. Be sure to report any federal income taxes withheld from your payments and the gross amount of benefits received the previous year.

Additional Considerations

If you receive a lump sum payout at retirement, you may be able to 'roll over' the taxable portion directly into an Individual Retirement Account (IRA) or another qualified pension plan. Certain types of contributions may be paid as a lump sum at retirement, and IMRF will report these on your 1099-R statement.

In conclusion, understanding your tax obligations is crucial when retiring from IMRF. By familiarizing yourself with income tax brackets, withholding, and reporting requirements, you can ensure a smooth transition into retirement and avoid any potential penalties or surprises. Remember to contact IMRF immediately if you have questions or concerns regarding taxes on your benefits.

2021 il income tax brackets