Direct Payments: Death benefits received as a direct payment are generally federally taxable and may be subject to state and local taxes for the year in which the benefit is distributed. The IRS requires that TRS withhold tax from death benefits as indicated below:

• 20% of the taxable portion of all rollover-eligible payments that are paid directly to the claimant. (However, the claimant may elect a higher percentage be withheld.)
• 10% of all payments not eligible for rollover that are paid directly to the claimant. (However, the claimant may elect a different percentage, including zero, be withheld.)
• 30% of a payment made to a claimant who is not required to file U.S. income taxes due to foreign citizenship (unless the claimant’s country has a different tax withholding arrangement with TRS).

Continuing Monthly Payments: You can elect a W-4P federal tax withholding rate while you are filing your online death benefit claim. If you do not make an online election, taxes will be withheld at the rate for a single person with no adjustments, as required by the IRS.