[Revenews] How to report the PERS repayment

[BALL Shannon]

Was your client one of the 29,000 PERS benefit recipients that needs to repay a portion of their PERS back they received between April 2000 - April 2004?  The repayment option they choose, will determine how to report the income on their taxes (see below).

Monthly benefit deducted
Once PERS begins the recovery process, the client will receive a Form 1099-R from PERS each year reporting the benefits paid in that calendar year.  Report the amount on the 1099-R on your client's tax return each year.  You will not make any adjustments on your client's tax return.

Lump sum payment
If your client paid Oregon tax on PERS income they received in April 2000 through April 2004 and are now paying a portion back, they qualify for a claim of right.  For Oregon, you can claim a subtraction or credit the year the client makes the repayment.  On the federal return, you can also deduct the repayment or claim a credit.  See Oregon Publication 17 ½ for further explanation and to determine if the subtraction or the credit is more beneficial.   (http://www.oregon.gov/dor/PERTAX/Pages/pubs.aspx)

 Claim of right subtraction - If the credit was claimed on the federal return, report the amount paid back to PERS this year as an "other subtraction" - subtraction code 302.  If the repayment was deducted on the federal return, it will flow through and no additional subtraction is required on the Oregon return.
*       Example 1:  Sally retired June 2000.  Sally received a letter from PERS and chose the lump sum payment option.  Sally owes $6,500 to PERS (overpayment amount from June 2000 to April 2004).  She paid PERS the full amount by check on September 5, 2012.  On Sally's 2012 federal return she claimed the credit, so for Oregon she claims an "other subtraction" of $6,500.

Claim of right credit - If the repayment was deducted on the federal return, add it back on the Oregon return before claiming the credit for Oregon.  To claim the credit enter the amount, as computed using the worksheet in the publication 17 ½, on the estimated tax payment line in the year it was repaid.  For tax years 2012 and later, check the "claim of right" box below the estimated tax line and include the credit amount on the estimated tax line.  For prior years, see form instructions.
*       Example 2:  Bob retired August 1, 2001.  Bob received a letter from PERS and chose the lump sum payment option.  Bob owes $5,600 to PERS (overpayment amount from August 2001 to April 2004).  To calculate the claim of right credit, Bob needs to figure out what his tax would have been in 2001, 2002, 2003, and 2004 with the correct PERS amount.  PERS does not tell Bob the repayment amount for each year but rather the total repayment.  To calculate the credit, Bob needs to calculate how much of the $5,600 overpayment was received in each year.  Bob is paying back 33 months of overpayments (August 2001 to April 2004).  Bob was overpaid $169.70 each month ($5,600/33 months).  Bob recalculates his 2001 Oregon tax as if his income was $849 lower (5 months), his 2002 and 2003 Oregon tax as if his income was $2,036 lower each year and his 2004 Oregon tax as if his income was $679 lower.

Payment arrangements
If your client chose the payment arrangement with PERS to pay back the overpayment, they will qualify for a claim of right for the amount repaid each year.  See Oregon Publication 17 ½ for further explanation to determine if the subtraction or the credit is more beneficial.

Claim of right subtraction -If the credit was claimed on the federal return, report the amount paid back to PERS as an "other subtraction" - subtraction code 302.  If the repayment was deducted on the federal return, it will flow through and no additional subtraction is required on the Oregon return.

Claim of right credit - If the repayment was deducted on the federal return, add it back on the Oregon return before claiming the credit for Oregon.  To claim the credit enter the amount, as computed using the worksheet in the publication 17 ½, on the estimated tax payment line in the year it was repaid.  For tax years 2012 and later, check the "claim of right" box below the estimated tax line and include the credit amount on the estimated tax line.  For prior years, see form instructions.  You can use any reasonable method to determine which year's distribution the client is paying back (first in first out, last in first out, average, etc).
*       Example 3:  Dianna retired August 1, 2001 and chose the payment arrangement option.  Dianna owes a total of $5,600 to PERS (overpayment amount from August 2001 to April 2004).  Dianna agreed with PERS to pay $150 a month starting September 1, 2012.  In 2012, Dianna pays a total of $600 to PERS ($150 * 4).  Dianna is paying back 33 months of overpayments (August 2001 to April 2004).  Dianna was overpaid $169.70 each month ($5,600/33 months).  Dianna will recalculate her 2001 Oregon tax as if her income was $600 lower.  In 2013, Dianna pays a total of $1,800 to PERS ($150 * 12).  Dianna will recalculate her 2001 Oregon tax as if her income was $249 lower ($169.70 x 5 months = $849 overpaid reduced by $600 repaid in 2012).  Then she will recalculate her 2002 Oregon tax as if her income was $1,551 lower ($1,800 - $249 for 2001 repayments).  Dianna will continue to claim a credit (or subtraction) each year until she completes her payment plan.


Shannon Ball
Personal Income Tax Policy Coordinator
Oregon Department of Revenue
Phone:  503-945-7938
Fax: 503-945-8649
shannon.ball at dor.state.or.us




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