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double taxation of pension
Old 02-13-2014, 02:57 PM   #1
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double taxation of pension

There is the possibility that Illinois may start taxing pensions. When I retired I moved to Indiana from Illinois. My pension here in Indiana is taxed. I am wondering if Illinois does eventually enact a tax on pensions, will I be double taxed? Can't seem to find an answer to this question. Any thoughts on this?
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Old 02-13-2014, 03:01 PM   #2
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some if not all states have provisions for prevention of double taxation of income. investigate the tax laws of each state. forms and instructions are often on line.
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Old 02-13-2014, 03:49 PM   #3
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like this? http://www.revenue.state.il.us/taxfo...chedule-CR.pdf

A common method (similar to the Federal Foreign Tax Credit) is to calculate the tax on that income taxed by the other state and compare it w the tax on that income taxed by your state and give you credit for the minimum of the two.
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Old 02-13-2014, 04:00 PM   #4
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Originally Posted by ripper1 View Post
There is the possibility that Illinois may start taxing pensions. When I retired I moved to Indiana from Illinois. My pension here in Indiana is taxed. I am wondering if Illinois does eventually enact a tax on pensions, will I be double taxed? Can't seem to find an answer to this question. Any thoughts on this?
I don't know if this is the exact same situation, but at one point in the early 1990s, California started to slap a "source tax" on pensions from people living out of state when the pension was earned from work performed in California.

Federal legislation was signed into law in 1996 to prohibit that practice for all pension income received after December 31, 1995.

My understanding now is that if Illinois enacts an income tax on pensions, that 1996 law will prevent Illinois from taxing you unless you live in Illinois (or lived there for at least part of a tax year).

Ask the Experts: Taxes during Retirement

Quote:
I'm retiring to a state with no income tax. Can my former state tax my retirement benefits?

The short answer is "no."

In the past, several states enacted "source tax" laws that attempted to tax retirement benefits if they were earned in that state, regardless of where a taxpayer resided when the benefits were ultimately paid. For example, if you earned a $50,000 annual pension while working in California, and then retired to Florida, California would attempt to tax those benefits, even though you were no longer a California resident.

But, in 1996, a federal law was enacted (P.L. 104-95) that prohibited states from taxing certain retirement benefits paid to nonresidents. As a result, if your retirement benefits are covered by the law (most are, see below), only the state in which you reside can tax those benefits.

...

The law applies to all qualified plans. This includes 401(k)s, profit-sharing plans and defined benefit plans, IRAs, SEP-IRAs, Internal Revenue Section 403(a) annuities, Section 403(b) plans, Section 457(b) plans and governmental plans.
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Old 02-13-2014, 04:02 PM   #5
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Originally Posted by kaneohe View Post
like this? http://www.revenue.state.il.us/taxfo...chedule-CR.pdf

A common method (similar to the Federal Foreign Tax Credit) is to calculate the tax on that income taxed by the other state and compare it w the tax on that income taxed by your state and give you credit for the minimum of the two.
I believe that applies to someone who moves from one state to another (or more) during a particular tax year. In that case, the total income is apportioned into chunks taxed under the jurisdiction of each of the states and that portion is taxed according to each state's income tax laws.

But in this case, OP is talking about being taxed from a state where they no longer live, only because the pension was "earned" there. The 1996 federal law I referenced above prohibits that practice.
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Old 02-13-2014, 04:15 PM   #6
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In a recent televised interview on PBS, our chief corruptician politician, Gov Quinn, stated that he'd like to continue to have SS, pensions and TIRA withdrawals excluded from income for Illinois income taxes. He said he wanted to encourage retirees to stay in, rather than flee from, Illinois. That would imply Illinois won't be able to tax pension/SS income of past residents.
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Old 02-13-2014, 04:16 PM   #7
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Thanks Zig.
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Old 02-14-2014, 12:25 AM   #8
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Is there pending legislation to tax pensions in Illinois? Or is this hearsay?
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Old 02-14-2014, 06:12 AM   #9
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Is there pending legislation to tax pensions in Illinois? Or is this hearsay?
Politicians are always looking for new sources of taxes. Whether the legislation is currently pending or not, it's a possibility. A previous posting said the gov doesn't want to encourage people to leave to avoid the tax so it's probably not on the burner. Florida is full of retired people with public pensions from NJ and NY.
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Old 02-14-2014, 06:16 AM   #10
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Politicians are always looking for new sources of taxes. Whether the legislation is currently pending or not, it's a possibility. A previous posting said the gov doesn't want to encourage people to leave to avoid the tax so it's probably not on the burner. Florida is full of retired people with public pensions from NJ and NY.
[I say the following out of curiosity, not a "intergenerational warfare" point of view which I'm not interested in discussing.]

But in reality, how much is it a net gain to target retirees to stay in your state, especially given tax breaks on retirement income and on seniors in general, combined with higher health care expenses for the class of retired people as a whole? (Honest question -- I don't know the answer.)

It seems to me that it might not really be a big "net win" for the state treasuries, but I could be way off base. They'd clearly have to spend enough money in their state and local economies to create enough economic activity to generate sufficient tax revenue in other ways, and if they do that, then yeah, I suppose it makes economic sense.
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Old 02-14-2014, 02:18 PM   #11
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Politicians are always looking for new sources of taxes. Whether the legislation is currently pending or not, it's a possibility. A previous posting said the gov doesn't want to encourage people to leave to avoid the tax so it's probably not on the burner. Florida is full of retired people with public pensions from NJ and NY.
Well, anything is possible. I think the OP gave the impression that it was probable, or at least >50/50. Having since done a little Googling, I find there's no indication of this, other than a suggestion by a legislator, given to a reporter in 2010.
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Old 02-14-2014, 07:52 PM   #12
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Originally Posted by BLS53 View Post
Well, anything is possible. I think the OP gave the impression that it was probable, or at least >50/50. Having since done a little Googling, I find there's no indication of this, other than a suggestion by a legislator, given to a reporter in 2010.
I think you are correct BLS. I read the STL newspaper daily and they are usually on top of those area things as they covered the income tax increase and pension reform of Illinois to the Nth degree. There has never been any mention of that changing that I have read. In fact my friend just recently moved there to avoid paying state taxes on his pension. Though the benefit didn't last long as his live in decided they needed a house and the property taxes just swallowed up his benefit and his bragging!
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