PENSION SOURCE TAX ACT OF 1996

REFERENCES AND BACKGROUND

Acronym: PSTA

Bill Reference: H.R. 394

Law Reference: P.L. 104-94

Date of Enactment : January 10, 1996

TAX PROVISIONS

Title 4 USC §114: The new law adds section 114 to Title 4 of the
United States Code.

States Prohibited From Taxing Certain Pensions Of Non-Residents
And Non-Domicilaries: No State may impose an income tax on any
retirement income of an individual who is not a resident or
domiciliary of such State (as determined under the laws of such
State).

Pensions Covered By The Act: In addition to prohibiting states
from taxing earnings from traditional, qualified plans maintained
by employers for all their retirees, the new law also prohibits
states from taxing nonresidents on payouts after 1995 from the
following types of retirement arrangements: section 401(k) plans;
workforce-wide pension plans and other funded retirement plans;
simplified employee pensions as defined in section 408(k); an
annuity plan or annuity contract; individual retirement accounts;
eligible deferred compensation plans as defined in section 457
(these plans are set up by state and local governments and permit
employees to contribute the lesser of 25 percent of compensation
or $7,500 to the plan with pretax dollars); any federal
government retirement program; a trust described in section
501(c)(18) (this is a trust created before June 25, 1959, that is
part of a pension plan meeting specified requirements and funded
only by contributions of employees); executive retirement plans
providing benefits greater than the amounts payable under the
above described types of workforce-wide qualified retirement
plans, such as section 401(k) plans and funded pension plans; and
any plan, program, or arrangement described in section
3121(v)(2)(C), provided that such income is part of a series of
substantially equal periodic payments made for the life or life
expectancy of the recipient or designated beneficiary, or for a
period of not less than 10 years.

Exceptions: Income not protected under the source tax bill
includes money generated from stock options, restructured stock
plans, severance plans, unemployment benefits, and any retirement
plan -- other than a workforce-wide retirement plan or an
executive "excess benefit" retirement plan -- with a payout
spanning less than 10 years.

Effective Date: Applies to amounts received after December 31,
1995.