PURPOSE: This rule establishes the requirements and procedures for claiming the exemption provided in section 143.124, RSMo for government pensions. (1) Background. On March 28, 1989, the United States Supreme Court ruled in the Davis v. Michigan Department of Treasury that a statute which exempts state and local retirement benefits from income tax without according similar treatment to federal retirement benefits unlawfully discriminates against federal retirees. Prior to this decision, only Missouri state and local governmental pension benefits were exempt from Missouri income tax. The applicability of that decision to Missouri was confirmed by the Missouri Supreme Court on May 25, 1989, in Hackman v. Director of Revenue. Hackman was retroactively applied to include all federal pensions for tax years beginning with 1985 through July 1, 1989. After July 1, 1989, six thousand dollars ($6,000) per year (three thousand dollars ($3,000) for a six (6)-month period) of government pension payments may qualify for an exemption against Missouri adjusted gross income (MAGI).

1. (2) All pension income which is taxable for federal purposes is also subject to tax by Missouri. However, recipients of government pension payments provided by the United States, this state, any other state or any political subdivision of this or any other state are eligible for an exemption against their MAGI, subject to certain income limitations as set forth in sections (3) and (4) of this rule. This exemption does not apply to private pensions.

2. (3) For the period beginning July 1, 1989 and ending December 31, 1989, each taxpayer receiving government retirement benefits is allowed an exemption of three thousand dollars ($3,000) against his/her MAGI for that period, determined pursuant to section 143.121, RSMo:

   1. (A) If the filing status is single, head of household or qualifying widow(er) and MAGI is less than twelve thousand dollars ($12,500);
   2. (B) If the filing status is married filing combined and combined MAGI is less than sixteen thousand dollars ($16,000); or
   3. (C) If the filing status is married filing separately and MAGI is less than eight thousand dollars ($8000).

3. (4) For tax years beginning on or after January 1, 1990, each taxpayer receiving government retirement benefits will be allowed an exemption of six thousand dollars ($6,000) against his/her MAGI for that period, determined pursuant to section 143.121, RSMo—

   1. (A) If the filing status is single, head of household or qualifying widow(er) and MAGI is less than twenty-five thousand dollars ($25,000);
   2. (B) If the filing status is married filing combined and combined MAGI is less than thirty-two thousand dollars ($32,000); or
   3. (C) If the filing status is married filing separately and MAGI is less than sixteen thousand dollars ($16,000).
4. (5) In determining MAGI for purposes of sections (3) and (4) of this rule, any Social Security benefits which are included in MAGI must be subtracted. This modified MAGI is used only for determining whether a taxpayer’s income exceeds the maximum income limitations as set forth in section 143.124.2. and 3., RSMo.
5. (6) Social Security benefits are not considered retirement benefits for purposes of section 143.124, RSMo.
6. (7) If the taxpayer’s modified MAGI is greater than the taxpayer’s applicable wage limitation for his/her filing status, the entire pension exemption is lost. No phase out of the exemption is allowed.
7. (8) The taxpayer and his/her spouse may each qualify for a government pension exemption provided, both taxpayers receive a qualifying pension and either their combined or separate (depending on filing status) MAGI is less than the applicable income limitation.
8. (9) Section 143.124.8., RSMo states, in pertinent part, the provisions of this section shall apply to other pensions as “subsequently defined.” However, as of April 8, 1993, no applicable legislation has passed. Subsequently, this exemption does not apply to private pensions.
9. (10) The following is a list of government pensions provided by the United States, this state, any other state or any political subdivision of this or any other state: United States Postal Service, Department of Army, Air Force Accounting and Finance Center/ Retirement Payment (AFAFC/RPT), Marine Corp, Department of Health and Human Services (DHHS)/United States Public Health Service, Department of Navy, Navy Mutual Aid Association, Administrative Office—United States Courts, United States Coast Guard Pay and Personnel Center, DHHS, Department of State, Government of District of Columbia, Federal Reserve Bank Pensions and Tennessee Valley Authority Retirement System. Most federal pensions are administered by Office of Personnel Management (OPM). Other qualifying pensions are Public Teachers Retirement and state and local pensions (from any state). This list is not all inclusive.
10. (11) In order to claim this pension exemption on the Missouri return, the taxpayer must complete the government pension exemption portion of the Missouri return. A copy of the taxpayer’s federal return, pages 1 and 2, and a 1099R must also be attached to the Missouri return.

AUTHORITY: section 143.961, RSMo 1994.* Original rule filed Sept. 11, 1992, effective April 8, 1993. *Original authority: 143.961, RSMo 1972.