I am retired, and I received a 1099-R form for distribution (deferred compensation plan). The distribution code is 2. Is this taxable for Pennsylvania or local municipality?
The distribution is not taxable if it is from an eligible retirement or pension plan, and the taxpayer meets the plan requirement for age or years of service. If the taxpayer does not meet the plan requirement for age or years of service, the distribution is taxable and is explained below. If the plan does not have a requirement for age or years of service, it is taxable.
If the distribution is from the State Employees Retirement System, Pennsylvania School Employees Retirement System, Municipal Employees Retirement System, or the U.S. Civil Service Commission Retirement Disability Plan, it is not taxable for Pennsylvania purposes.
The distribution is taxable if it exceeds the taxpayer’s adjusted basis in the plan. The adjusted basis in the plan or retirement account is generally the total of all contributions to the plan. In some instances, previous distributions must be deducted from total contributions to determine the adjusted basis remaining in the plan. If the distribution exceeds the adjusted basis in the plan, the amount of the excess is taxable compensation for Pennsylvania purposes.
If a distribution is considered taxable to Pennsylvania, it is also taxable for a local municipality.
Answered by: Marian R. Derr, CPA, is with Duane Morris LLP in Philadelphia, Pa.