Are you one of the 29,000 PERS benefit recipients that need to repay a portion of your PERS that you received between April 2000–April 2004? If you paid Oregon tax on those benefits back then, you can make an adjustment on your tax return in the year of repayment. Whether you choose the lump sum or payment arrangement option, you can take either a claim of right subtraction or claim of right credit on your Oregon return. See Oregon Publication 17½ for further explanation and to determine if the subtraction or the credit is more beneficial.
NOTE: If you choose to have the repayment deducted from your monthly benefits you will receive a Form 1099-R from PERS each year reporting the net benefits paid to you in that calendar year. Report that amount on your tax return. You will not make any adjustments or have a claim of right on your tax return.
Claim of right subtraction
If you claimed the claim of right credit on the federal return, report the amount you paid back to PERS this year as an “other subtraction” (subtraction code 302) on your Oregon return. If you deducted the claim of right repayment on the federal return, it will flow through and no additional subtraction is required on your Oregon return.
Example 1: Sally retired June 2000 and chose the lump sum payment option to reimburse PERS for the overpayment. 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 will claim the claim of right credit, and on the Oregon she will claim an “other subtraction” of $6,500.
Claim of right credit
If you deducted the claim of right repayment on the federal return, you must add that amount back on the Oregon return as an “other addition” (addition code 103) before you can claim the credit. To claim the credit enter the amount, as computed using the worksheet in the publication 17½, on the estimated tax payment line and check the “claim of right” box below the line (for prior years, see the form instructions).
Example 2: Bob retired August 1, 2001 and chose the lump sum payment option to reimburse PERS for the overpayment. In 2012, Bob repaid $5,600 to PERS (overpayment amount from August 2001 to April 2004—33 months). To calculate the claim of right credit, Bob figures what his tax would have been in those years with the correct PERS amount. PERS gives the total repayment amount but not the amount paid for each year. Bob reasonably figures he was overpaid $169.70 each month ($5,600÷33 months). Bob calculates $77 less Oregon tax for 2001 (income is $849 lower), his 2002 and 2003 Oregon tax is $183 less each year (income is reduced by $2,036 each year) and his 2004 Oregon tax is $61 less (income is $679 lower). The credit Bob reports on the 2012 estimated tax payment line is $504 ($77 + $183 + $183 + $61).
Example 3: Dianna retired August 1, 2001 and chose the payment arrangement option to reimburse PERS for the overpayment. Dianna owes $5,600 to PERS (overpayment amount from August 2001 to April 2004—33 months). Dianna agreed with PERS to repay $150 a month starting September 1, 2012. In 2012, Dianna pays a total of $600 to PERS ($150 x 4 months). Dianna reasonably figures she was overpaid $169.70 each month ($5,600÷33 months). Dianna calculates $54 less Oregon tax for 2001 (income is $600 lower). On Dianna’s 2012 Oregon return, she will report a claim of right credit of $54. In 2013, Dianna will pay a total of $1,800 to PERS ($150 x 12 months). Dianna will recalculate $22 less for Oregon tax in 2001 (income is $249 lower: $169.70 x 5 months = $849 overpaid reduced by $600 repaid in 2012). Then she will recalculate $140 less for Oregon tax in 2002 (income is $1,551 lower: $1,800 - $249 for 2001 repayments). On Dianna’s 2013 Oregon return, she will report a claim of right credit of $162. Dianna will continue to claim a credit (or subtraction) each year until she completes her payment plan.
NOTE: You can use any reasonable method to determine which year’s distribution you are paying back—first in first out, last in first out, average, etc.