Taxes

Income taxes Tax basics

Effective and marginal tax rates

What is taxable? Pensions and annuities Other income Home sale gains

Paying taxes in retirement Withholding Estimated taxes

State taxes

Effective tax rate = Tax

Taxable income

Marginal tax rate = Rate applied to your last taxable dollar

Useful for figuring after-tax return

Basic concepts

See IRS Publication 575 - Pension and Annuity Income

What is taxable?

Your City pension

Deferred Compensation Plan distributions

Social Security

Home sale gains

Your City pension

Partially tax-free as return of your after-tax contributions

After recovery of after-tax contributions, pension is fully taxable

Deferred Compensation Plan

All distributions fully taxable in year received

No early-withdrawal penalties

Can be rolled over into an IRA

Three-year catch-up provision available within three years of retirement eligibility

Age-based catch-up available to employees 50 years of age

Rules on IRAs

10% federal penalty on withdrawals before age 59-1/2

2.5% California penalty

Must start withdrawing from an IRA by April 1 of year following age 70-1/2 according to formula

50% penalty on underwithdrawals in year following age 70-1/2 or later

Social Security Up to 85% may be taxable if income exceeds

certain level

Home sale gains

Exclusion available for capital gain Conditions

Owned home two of last five yearso Lived in home two of last five years o Have not used the exclusion in two-year period

ending on sale date

Amount Single: $250,000 Married: $500,000 (if both meet the “lived-in-it” and

“have-not-used” requirements; otherwise $250,000)

Paying your tax

Timely payment required

Penalty for late payment

Withholding

* Other percentages may apply to certain high-income taxpayers

Paying your tax

Estimated tax payments

No penalty if: Less than $1,000 owed at filing time 100% of previous year's tax amount paid* 90% of current year's tax paid

State taxes State income tax treatment

of retirement income varies Consult a local state tax

expert California income taxes

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