Residents of Ohio who receive payments from the state's retirement system are subject to federal and state taxes on their retirement benefit. The state will withhold taxes from your monthly benefit just as it did when you were working, if you want it to. While the state determines federal withholding after you complete Form W-4P, you must calculate the amount you want the state to withhold for state taxes, and fill out Form IT-4P to let the state know how much to withhold from your monthly retirement payment.
Multiply your current monthly retirement payment by 12 to determine your yearly retirement income. For example, if your current gross monthly payment is $3,365, your retirement income for the year from the state is $40,380.
Visit the Ohio Department of Taxation's website to view the current tax table. As of 2011, the tax due on $40,380 is $360.42 plus 3.521 percent on any amount over $20,450. Calculate the amount you owe by subtracting $20,450 from $40,380. Multiply the total by 3.521 percent and add that to $360.42. For example, $40,380 minus $20,450 equals $19,930. $19,930 times 0.03521 equals $701.74. $701.74 plus $360.42 equals $1062.16.
Subtract the tax credit that Ohio gives for retirement income from your total tax liability. For example, subtract $200 -- the credit for retirement income over $800 -- from $701.74 to calculate that your total state tax liability is $501.74.
Divide $501.74 by 12 to determine that the state should withhold $41.81 from each retirement check. Enter the withholding amount in Section 2 of Form IT-4P, and return it to the Ohio Public Employees Retirement System (OPERS) after completing Section 1 of the form.
- Sign Form It-4P before sending it to OPERS.
- Seek the advice of a tax professional if you have questions about Ohio income taxes.
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