INCOME TAX AND THE SRP (For Participants joining the Plan on or after April 15, 1998 Net Plan) The information provided below is for information purposes only - it is not tax advice. U.S. tax law is subject to change, and tax consequences may vary depending upon your personal circumstances. If you have any questions about your own personal tax situation, you should consult with a professional tax advisor. It is your responsibility to comply with the provisions of the law as it relates to payment of any tax due on your pension benefits from the SRP and the World Bank. Are pension payments taxable? Unlike the net of tax salaries paid to most Bank Group staff, benefits under the SRP are commonly subject to income taxes. Whether you will actually have an income tax liability on your SRP pension or lump sum distribution will depend on the tax laws of your country of tax residence and your personal circumstances. Will I be reimbursed for the income taxes levied on Bank SRP benefits? Participants in the Bank Net Plan (staff joining the Plan on or after April 15, 1998) will receive a tax supplement on taxable benefits from the Defined Benefit and Cash Balance Components of the Plan. A tax supplement does not apply to benefits payable from the Voluntary Savings Component. The tax supplement is based on the income tax rates of the country in which the benefit is taxable and the amount of the taxable portion of the benefit. The tax supplement is an approximation of the actual income tax due. If you receive a lump sum payment your tax supplement will be paid at time of termination (please complete Form 70 SRP). If the taxable status of your pension changes during retirement, or if your pension becomes taxable in a different tax jurisdiction, your tax supplement will be adjusted to reflect that change. Are SRP benefits subject to income tax in the U.S.? SRP benefits received by U.S. citizens and by non-citizens who are U.S. residents for income tax purposes are subject to U.S. income tax. As explained below, the portion of a SRP payment that is taxable in the U.S. will vary depending upon a number of factors. Are SRP benefits subject to income taxes in countries other than the U.S.? The taxation of World Bank pensions varies from country to country. You should consult with a tax adviser or tax authorities in the country where you retire to determine the taxation of your World Bank pension. Staff in the Net Plan are eligible for a tax supplement if their World Bank pension is subject to income tax. Please contact the Tax Service Desk at (202) 458-4191 regarding information on how to apply for the tax supplement.
Who is a U.S. resident for income tax purposes? Generally, anyone who holds a permanent resident visa (or green card ) or who satisfies the substantial presence test in any particular calendar year will be a U.S. resident for income tax purposes. If you hold a G-IV visa during your full time employment with the Bank Group, you will generally not be considered a tax resident while you continue to hold your G-IV visa. However, you could become a resident when you terminate service with the Bank Group if you remain in the U.S. The taxability of your lump sum withdrawal and/or pension in the U.S. will depend on whether and when you become a resident. What is the substantial presence test? Assuming that you are not a resident when you retire, and you are employed full-time on a G-IV visa by the Bank Group during the three years prior to retirement, you will become resident under the substantial presence test in the year you retire if you are present in the U.S. for at least 183 days during that year. (Days when you are a full-time employee, or a spouse of a full-time employee, of the World Bank Group or certain other international organizations are not counted.) For example, if your retirement date is July 2 or later, and you remain in the U.S. for the rest of the year, you will not be present for 183 days. Thus, you will not be resident in that year, and your lump sum benefit and/or pension during this period will not be taxable. If your retirement is prior to July 2, and you remain in the U.S. for the rest of the year, you will be present for at least 183 days. Thus, you will be resident in that year, and your lump sum benefit and/or pension received on or after your first day of residency will be taxable. For tax years following termination from the Bank a person is considered resident for tax purposes in a calendar year if he/she is present in the United States for at least 31 days in that year, and the total days of presence in the United States in that year and the preceding two years are at least 183, where one day is counted for each day of presence in the current year, 1/3 is counted for each day in the first preceding year, and 1/6 is counted for each day in the second preceding year. (Days when you are a full-time employee, or a spouse of a full-time employee, of the World Bank Group or certain other international organizations are not counted.) First day of residency If you become resident by obtaining a permanent resident visa, you will be considered a resident as of the day your application for permanent residence is approved (not the day you actually receive your green card ). If you become resident by meeting the substantial presence test, you will be considered resident as of your first day of presence within the U.S., which in most cases will be the first day following your retirement date. If you obtain a green card and also meet the substantial presence test in the same year, you will become resident as of the earlier of the first days of residency for each. If you plan on remaining in the U.S. after retirement but intend to delay applying for a permanent resident visa,
you want to be sure that you are remaining in the U.S. legally. You may wish to consult with an immigration attorney or specialist for advice. If you are nonresident but have chosen to file U.S. income tax returns as a resident filing jointly with your spouse, you can revoke that election by filing an appropriate statement with your tax return, preferably in advance of the year in which you retire. For additional information, refer to Internal Revenue Service Publication 519, U.S. Tax Guide for Aliens, under the heading Ending the Choice-Revocation. Neither you nor your spouse may choose to file jointly after this revocation. How are pensions taxed in the United States? Your pension and/or lump sum benefit is split into excludable and taxable portions as defined under the Internal Revenue Code. The excludable portion includes your contributions and, for non-u.s. staff, the Bank 10% contribution and the deemed Bank contribution on the defined benefit component. Anything in excess of the excludable amount is taxable, such as investment earnings and including any COLAs after you retire. Generally for US citizens, the defined benefit component is 100% taxable, if you convert your cash balance into an annuity then the excludable portion is roughly 5%. For non-us citizens, the exclusion is roughly 30% of the defined benefit and the cash balance component of the pension/annuity if your cash balance component is converted into an annuity. If you are subject to U.S. income tax, the Bank Group will compute annually the amount of your taxable income received from the SRP during the year, and this amount will be provided to both you and the U.S. Internal Revenue Service. How will my taxes be affected if I become a U.S. citizen before I retire? Your excludable amount will be determined in two ways. For the period before you become a citizen, it will be based on your contributions plus the Bank 10% contribution and deemed Bank Group contributions to the defined benefit component. After you become a citizen, it will be based on your contributions only. The change to a smaller exclusion basis means more taxes on your pension. The relative effect is less pronounced if you change citizenship close to your retirement date. How will my taxes be affected if I become a U.S. citizen after I retire? The excludable portion of your pension will be determined according to your nationality while you were in service at the Bank Group. Becoming a U.S. citizen after retirement does not alter that exclusion calculation. How does my G-IV visa status affect taxes on my pension? G-IV is a U.S. immigration status. The taxable amount of your pension depends upon whether or not you were a U.S. national during service with the Bank Group. It will not vary depending upon your visa status.
If I am not a U.S. tax resident upon retirement, will my lump sum benefit be subject to U.S. income tax? It is possible to receive your lump-sum benefit tax-free if you are a not a U.S. resident for income tax purposes on the date you receive your lump sum benefit. If you apply for a green card, this means that your lump sum benefit must be paid to you before your application for a permanent resident visa is approved. Additionally, in order to receive a tax free lump sum benefit, you should avoid satisfying the substantial presence test in the year of termination or retirement. You can likely do so by terminating or retiring on or after July 2. If you are neither a U.S. citizen nor a permanent resident upon termination, but you plan to remain in the U.S. following termination and elect to take your lump sum benefit, you should review the section above entitled: Who is a U.S. resident for income tax purposes, including the discussion under the heading the first day of residency. How will my lump sum benefit be taxed in the U.S.? If you are a U.S. citizen, the amount by which your lump sum benefit exceeds your contributions is taxable as ordinary income. However, you can defer taxes if the taxable portion is either directly transferred by the Plan to, or rolled over into, an IRA. If you are not a U.S. citizen, your U.S. tax status will be determined on the basis of Green Card/Residency tests and your participation in the Plan. If you are a U.S. national, approximately 95% of your lump sum benefit will be subject to tax. If you are not a U.S. national, then a portion of your lump sum benefit will be subject to U.S. income tax, if you are a resident for U.S. income tax purposes when you receive your lump sum benefit payment. The portion of your lump sum benefit that is taxable will vary with investment earnings. Is there any way I can defer taxes on my lump sum benefits? The SRP is a U.S. tax qualified plan. If your lump sum benefit is subject to U.S. tax, you can defer paying some or all of the tax by having the Plan transfer all or a portion of the lump sum benefit to an Individual Retirement Account (IRA). Alternatively, you may receive the lump sum benefit and roll over all or some of it into an IRA within 60 days of receiving the lump sum benefit. If you do not have an IRA, you can create one solely for the purpose of accepting your rollover or direct transfer. The amount you rollover will not be subject to tax until it is distributed from your IRA. You will receive further information about rollovers at the time you request a lump sum benefit. How are taxes in the United States paid on SRP benefits? The taxable portion of your pension or lump sum payment is included with your other taxable income, less allowed deductions and exemptions to compute
your net taxable income. Tax rates are applied based on your taxable income and your filing status (for example, whether resident or non-resident, married or single). If you are liable for U.S. income taxes you must file estimated taxes quarterly and a final actual tax return in mid-april of the following year (The date may vary if April 15 falls on a weekend.) In general, due dates are April 15, June 15, September 15 and January 15 for quarterly returns, and April 15 for the final return. The Bank Group will not withhold taxes for any retiree. If you are a retiree married to a spouse with taxable earnings, your spouse may increase taxes withheld from his or her payroll to cover the tax liability the two of you will owe as joint filers. If you are residing in the U.S., you may also be liable for state or local income taxes (or both) depending on your state of residence. State estimated tax payments and state tax returns may be required. To ensure that you are in compliance with U.S. tax laws, you should seek assistance from a tax professional. You may contact the Bank s Legal Assistance Service or Tax Service Desk for referral to tax professionals. Do the same tax regulations apply to the Voluntary Savings Component? The Voluntary Savings Component (VSC) is part of the SRP and the same U.S. tax provisions apply. If you are a U.S. Citizen or a U.S. tax resident when you receive your VSC lump sum, the portion of the lump sum benefit that is attributable to earnings on your contributions will be taxable and the portion representing your contributions will be tax free. If you are not a U.S. citizen, whether you are a U.S. tax resident will be determined on the basis of Green Card/Residency tests described earlier in this fact sheet (see above). Unlike benefits from the Defined Benefit and Cash Balance Component, benefits from the Voluntary Savings Component are not eligible for a tax supplement. Does the Bank report to tax authorities about payments under the Plan? For U.S. citizens and residents for tax purposes, the Bank Group will report annually to the U.S. Internal Revenue Service the amount of taxable SRP income received by these individuals. For this purpose, you should notify Pension Administration of any change in your U.S. tax residence status. The information provided above is for information purposes only - it is not tax advice. U.S. tax law is subject to change, and tax consequences may vary depending upon your personal circumstances. If you have any questions about your own personal tax situation, you should consult with a professional tax advisor. Pension Administration April 2010