Retirement Income Exemption/Deduction (code 18)

UC Section 59-10-1019

Utah Retirement Tax Credit

Starting with the 2008 tax year, Utah taxpayers may be able to claim a retirement tax credit on their Utah Individual Income Tax Return. Previously, an income exclusion was allowed taxpayers age 65 or over, and a deduction of retirement income received was allowed taxpayers under the age of 65.

Credit for Taxpayers Age 65 and Over

A taxpayer who meets the following requirements may be able to claim a nonrefundable tax credit of up to $450:

1. The taxpayer must have been born before 1953; and
2. The taxpayer must be age 65 or over in 2008.

If a married couple filing a joint return are both age 65 or over may claim a credit of up to $900.

The credit will be phased-out for income that exceeds a certain amount. See Phase-out Calculation below.

Credit for Taxpayers Under Age 65

A taxpayer who meets the following requirements and receives eligible retirement income during the year may be able to claim a nonrefundable tax credit of up to the greater of 6 percent of eligible retirement income or $288:

1. The taxpayer must have been born before 1953;
2. The taxpayer must be under the age of 65 at the end of 2008;
3. The taxpayer must have received eligible retirement income from one or more of the sources listed below.

Eligible Retirement Income

Eligible retirement income is pension or annuity income paid to a retiree or the surviving spouse of the retiree if:

1. The income was paid from an annuity contract purchased by an employer under a plan that meets the requirements of IRC Section 404(a)(2);
2. The income was purchased by an employee under a plan that meets the requirements of IRC section 408; or
3. The income was paid by the United States, a state or political subdivision of a state, or the District of Columbia (e.g. taxable social security benefits, excluding disability or survivor benefits).

A surviving spouse is entitled to the credit for eligible retirement income received on behalf of a deceased spouse. However, children and other recipients are not entitled to the credit.

Eligible retirement income must be attributable to the taxpayer claiming the credit. Retirement income attributed to a spouse because of community property law does not qualify.

The credit will be phased-out for income that exceeds a certain amount. See Phase-out Calculation below.

Phase-out Calculation

The retirement credit must be reduced by 2.5 percent of the income in excess of the following amounts:

• $25,000 if filing as single,
• $32,000 if filing as married jointly or qualifying widow(er),
• $16,000 if filing as married separately, and
• $32,000 if filing as head of household.

Income, for purposes of the phase-out calculation, is total income shown on your Utah TC-40, line 6 (federal adjusted gross income plus additions to income), plus non-taxable interest as shown on your federal form 1040 or 1040A, line 8b.

Credit Calculation

The calculation of the retirement tax credit is done on form TC-40C, Retirement Tax Credit. If claiming this credit, attach form TC-40C, Retirement Credit Schedule to your Utah return. The credit calculated on your TC-40C is carried over to TC-40A, Part 3, using code 18.