Tax Type
Individual Income Tax
Description
Retirement income
Topic
Subtractions and Exclusions
Taxable Income
Date Issued
11-20-1989
November 20, 1989
Re: Request for Ruling/Individual Income Tax
Dear***************
This will reply to your letter dated March 14, 1989 in which you request a ruling on the taxability of your retirement benefits.
FACTS
The Taxpayer is a retired*********** from the ***********. The ************** pension plan (the "Plan") is supported by the *********and employee contributions. The Plan is maintained and benefits are paid by the **********Life Insurance Company. Upon her retirement, the Taxpayer withdrew her retirement funds lump sum from the Plan and rolled them over into split annuities. She requests a ruling on the tax status of the resulting annuities.
RULING
For taxable years prior to January 1, 1989, Virginia Code §58.1-322(C)(3) provided a subtraction from federal adjusted gross income for "[p]ensions or retirement income to officers and employees of the Commonwealth, its subdivisions and agencies,...paid by the Commonwealth or an agency or subdivision thereof." (Emphasis added) The department has held in a previous ruling letter that pension benefits of the Plan were exempt from Virginia taxation under the above provision because of the agency relationship between the insurance company and the
In the instant case, the withdrawal of pension benefits from the Plan terminated the Taxpayer's relationship with the Plan and thus her eligibility for the retirement income subtraction from federal adjusted gross income explained above.
However, as the result of a United States Supreme Court decision requiring equal treatment of state and federal government retirement benefits for state income tax purposes, legislation was adopted by a special session of the 1989 General Assembly which repealed the above provision exempting Virginia Supplemental Retirement System and local retirement benefits from state taxation for taxable years beginning on and after January 1, 1989.
The new law adopted by the General Assembly provides a retirement income subtraction from federal adjusted gross income of up to $16,000 for all retirees - federal, state and private - aged 55 or older provided their retirement income is derived from qualified retirement plans. I have enclosed a summary of the key provisions of this legislation for your perusal which explains the types of plans that qualify for exemption.
Thus, income received by the Taxpayer from her annuities prior to January 1, 1989 is taxable. Thereafter, the taxability of the income will be governed by the new retirement income subtraction provided the annuities are qualified retirement plans under Virginia Code §58.1-322.C.15.
If you have any further questions, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner