Implementation of New Form for
Certification of Bona Fide Termination
Beginning in January 2024, MainePERS will implement a new version of the Employer Preliminary Benefit Certification form for employers to use in ESS that contains the Certification Regarding Bona Fide Termination to comply with IRS Code 72(t) the “early distribution tax”. This was previously communicated to employers via an email notification in late November. A sample of the revised form and instructions for when and how to complete the new Certification Regarding Bona Fide Termination section may be found on our website at ESS Guides and Quick References (See, CL-0055-Employer Preliminary Benefit Certification Form).
Under federal tax law, if an employee retires before 59½ and returns to work for the same employer without a bona fide termination, that retiree is subject to a 10% early distribution tax on their retirement benefits until they reach age 59½. A bona fide termination means there can be no explicit understanding or agreement that the employee will return to work after retirement. This tax does not apply if the employee retires before 59½ and returns to work for a different employer. It also does not apply if the employee returns to work for the same employer without a pre-retirement agreement that the employee would do so.
MainePERS must report on the retiree’s annual 1099-R that benefits received are subject to the 10% tax if the retiree has returned to work with the same employer without a bona fide termination. This will be reflected on the 1099-R beginning with the 2023 tax year.
For more information regarding the IRS 10% early distribution tax, who it applies to and answers to frequently asked questions, visit our Return To Work webpage.
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