Tax Policy

Taxation of Pension Income for Retired New Jersey Police and Firefighters Gao ID: GGD-90-73BR April 13, 1990

Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) use of actuarial tables, focusing on: (1) the fairness of those tables in computing taxable pension income; and (2) an alternative income computation method that takes into account occupations and other factors.

GAO found that: (1) the estimated life expectancies for New Jersey police and firefighters were equal to those of the general population but shorter than those in the IRS tables; (2) using estimates of New Jersey police and firefighters' life expectancies instead of IRS tables reduced taxable pension income during initial retirement, followed by 1 or more years of increased taxable income; (3) the small tax savings did not warrant a separate table of life expectancies for police and firefighters; (4) using separate tables could complicate tax administration, set precedents for occupational and demographic groups, and confuse taxpayers; (5) taxes paid during initial retirement were the same despite the use of different tables; and (6) an IRS publication failed to clarify when the simplified general rule was to retirees' advantage.

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