Professional Documents
Culture Documents
US Internal Revenue Service: p721 - 1999
US Internal Revenue Service: p721 - 1999
Service Part IV
Rules for Survivors of Federal Employees ...... 17
Retirement Part V
Rules for Survivors of Federal Retirees .......... 21
Introduction
This publication explains how the federal income tax
rules apply to civil service retirement benefits received
by retired federal employees (including those disabled)
or their survivors. These benefits are paid primarily
under the Civil Service Retirement System (CSRS) or
the Federal Employees' Retirement System (FERS).
To change the amount of tax withholding or to • 20% if the distribution is an eligible rollover distri-
stop withholding, call OPM's Retirement Infor- bution, or
mation Office at 1-888-767-6738 ( in the met- • 10% if it is a nonperiodic distribution, or
ropolitan Washington, D.C. area call 202-606-0500),
or call Annuitant Express at 1-800-409-6528. No special • Determined by treating the payment as wages, if it
form is needed. You will need your retirement claim is a periodic distribution.
number (CSA or CSF) and your social security number
However, you can usually choose not to have tax
when you call.
withheld from TSP payments other than eligible rollover
distributions. By January 31 after the end of the year
Withholding from certain lump-sum payments. If in which you receive a distribution, the TSP will issue
you leave the federal government before becoming eli- Form 1099R showing the total distributions you re-
gible to retire and you apply for a refund of your con- ceived in the prior year and the amount of tax withheld.
tributions, or you die without leaving a survivor eligible For a detailed discussion of withholding on distribu-
for an annuity, you or your beneficiary will receive a tions from the TSP, see Important Tax Information
distribution of your contributions to the retirement plan About Payments From Your Thrift Savings Plan Ac-
plus any interest payable. Tax will be withheld at a 20% count (Rev. July 1998), available from your agency
rate on the interest distributed. However, tax will not personnel office or from the TSP.
be withheld on the interest if you roll it over to a tradi-
tional IRA or a qualified plan by having OPM transfer The above document is also available on the
it directly to the traditional IRA or other plan. See Internet at www.tsp.gov. Select “Forms &
Rollover Rules in Part II. If you receive only your con- Publications,” then select “Other Documents.”
tributions, no tax will be withheld.
If you retire and elect to receive a reduced annuity Filing Requirements
and a lump-sum payment under the alternative annuity
option, tax will be withheld at a 20% rate on the taxable If your gross income, including the taxable part of your
part of the lump-sum payment received. (See Alterna- annuity, is less than a certain amount, you generally
tive Annuity Option in Part II for information about this do not have to file a federal income tax return. The
option.) However, no tax will be withheld from the lump gross income filing requirements are in the instructions
sum if you roll the taxable part over to a traditional IRA to the Form 1040, 1040A, or 1040EZ, that you get each
or a qualified plan by having OPM transfer the taxable year. You should check these requirements closely
part directly to a traditional IRA or other plan. because they change occasionally.
Deduction of unrecovered cost. If your annuity Line 2. See the discussion at the beginning of this
starting date is after July 1, 1986, and the cost of your Part II for an explanation of your cost in the plan. If your
annuity has not been fully recovered at your (or the annuity starting date was after November 18, 1996, and
survivor annuitant's) death, a deduction is allowed for you chose the alternative annuity option (explained later
the unrecovered cost. The deduction is claimed on your under Alternative Annuity Option), you must reduce
(or your survivor's) final tax return as a miscellaneous your cost by the part of the lump-sum payment you
itemized deduction (not subject to the received tax-free as a return of your cost.
2%-of-adjusted-gross-income limit). If your annuity Line 3. Find the appropriate number from one of the
starting date is before July 2, 1986, no tax benefit is tables at the bottom of the worksheet. If your annuity
allowed for any unrecovered cost at death. starting date is after 1997, use:
Choosing a survivor annuity after retirement. If you • Table 1 for an annuity without a survivor's benefit,
retired without a survivor annuity and began reporting or
your annuity under the Simplified Method, do not • Table 2 for an annuity with a survivor's benefit.
change your tax-free monthly amount even if you later
choose a survivor annuity. If your annuity starting date is before 1998, use Table
If you retired without a survivor annuity and decided 1.
to report your annuity under the General Rule, you must Line 6. If you retired before 1998, the amount pre-
figure a new exclusion percentage if you later choose viously recovered tax free that you must enter on line
a survivor annuity. To figure it, reduce your cost by the 6 is the total amount from line 10 of last year's work-
amount you previously recovered tax free. Figure the sheet. If your annuity starting date is before November
expected return as of the date the reduced annuity be- 19, 1996, and you chose the alternative annuity option,
gins. For details on the General Rule, see Publication it includes the tax-free part of the lump-sum payment
939. you received.
Example. Bill Kirkland retired from the federal gov-
Canceling a survivor annuity after retirement. If you ernment on April 30, 1999, under an annuity that will
notify the Office of Personnel Management (OPM) that provide a survivor benefit for his wife, Kathy. His annuity
your marriage has ended, your annuity might be in- starting date is May 3, 1999. He must use the Simplified
creased to remove the reduction for a survivor benefit. Method to figure the tax-free part of his annuity benefits.
The increased annuity does not change the cost re- Bill's monthly annuity benefit is $1,000. He had con-
covery you figured at the annuity starting date. The tributed $24,700 to his retirement plan and had received
tax-free part of each annuity payment remains the no distributions before his annuity starting date. At his
same. annuity starting date, he was 65 and Kathy was 57.
For more information, contact OPM's Retire- Bill's completed worksheet (Table 1) is shown on the
ment Information Office at 1-888-767-6738 ( in next page. To complete line 3, he used Table 2 at the
the metropolitan Washington, D.C. area call bottom of the worksheet and found the number in the
202-606-0500), or call Annuitant Express at second column opposite the age range that includes
1-800-409-6528. 122 (his and Kathy's combined ages). Bill keeps a copy
of the completed worksheet for his records. It will help
him (and Kathy, if she survives him) figure the taxable
amount of the annuity in later years.
Simplified Method Bill's tax-free monthly amount is $80. (See line 4 of
If your annuity starting date is after November 18, 1996, the worksheet.) If he lives to collect more than 310
you must use the Simplified Method to figure the tax- monthly payments, he will have to include in his gross
free part of your CSRS or FERS annuity. You could income the full amount of any annuity payments re-
have chosen to use either the Simplified Method or the ceived after 310 payments have been made.
Page 5
Table 1. Simplified Method Worksheet (Keep For Your Records)
See the instructions for the worksheet in Part II under Simplified Method.
1. Enter the total annuity received this year. Also add this amount to the total for Form 1040,
line 16a, or Form 1040A, line 11a $ 8,000
2. Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion 24,700
NOTE: If your annuity starting date was before this year and you completed this worksheet
last year, skip line 3 and enter the amount from line 4 of last year’s worksheet on line 4
below. Otherwise, go to line 3.
3. Enter the appropriate number from Table 1 below. But if your annuity starting date was
after 1997 and the payments are for your life and that of your beneficiary, enter the
appropriate number from Table 2 below 310
5. Multiply line 4 by the number of months for which this year’s payments were made. If
your annuity starting date was before 1987, enter this amount on line 8 below and skip
lines 6, 7, 10, and 11. Otherwise go to line 6 $ 640
6. Enter any amounts previously recovered tax free in years after 1986 0
9. Taxable annuity for year. Subtract line 8 from line 1. Enter the result, but not less than
zero. Also add this amount to the total for Form 1040, line 16b, or Form 1040A, line 11b.
If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount on
this line instead $ 7,360
Page 6
If Bill does not live to collect 310 monthly payments You can figure the taxable part of a lump-sum pay-
and his wife begins to receive monthly payments, she ment using Table 2, Worksheet for Lump-Sum
will also exclude $80 from each monthly payment until Payment, near the end of this publication.
310 payments (Bill's and hers) have been collected. If
she dies before 310 payments have been made, a Example. David Brown retired from the federal
miscellaneous itemized deduction (not subject to the government in 1999, one month after his 55th birthday.
2%-of-adjusted-gross-income limit) will be allowed for He had contributed $31,000 to his retirement plan and
the unrecovered cost on her final income tax return. chose to receive a lump-sum payment of that amount
under the alternative annuity option. The present value
of his annuity contract was $155,000. Using the Table
General Rule 2 worksheet, he figures the taxable part of the lump-
If your annuity starting date is after November 18, 1996, sum payment and his net cost in the plan. That work-
you cannot use the General Rule to figure the tax-free sheet is shown later.
part of your CSRS or FERS annuity. If your annuity
starting date is after July 1, 1986, but before November Simplified method after receiving a lump-sum pay-
19, 1996, you could have chosen to use either the ment. If you have chosen to receive a lump-sum pay-
General Rule or the Simplified Method. If your annuity ment under the alternative annuity option, you will also
starting date is before July 2, 1986, you could have receive reduced monthly annuity payments. These an-
chosen to use the General Rule only if you could not nuity payments will each have a tax-free and a taxable
use the Three-Year Rule. part. To figure the tax-free part of each annuity pay-
Under the General Rule, you figure the tax-free part ment, you must use the Simplified Method Worksheet
of each full monthly payment by multiplying the initial (Table 1). In figuring the tax-free part, you must reduce
gross monthly rate of your annuity by an exclusion your cost in the plan (line 2 of Table 1) by the tax-free
percentage. Figuring this percentage is complex and part of the lump-sum payment you received. Do not
requires the use of actuarial tables. For these tables include this tax-free amount with other amounts recov-
and other information about using the General Rule, ered tax free (line 6 of Table 1) when limiting your total
see Publication 939. exclusion to your total cost.
Example. Under the facts in the previous example,
Three-Year Rule David figures the taxable part of his annuity payments
by reducing his $31,000 cost in the annuity plan by the
If your annuity starting date was before July 2, 1986, $6,200 tax-free part of the lump-sum payment. He en-
you probably had to report your annuity using the ters his $24,800 net cost in the plan (from line 5 of
Three-Year Rule. Under this rule, you excluded all the Table 2) on line 2 of Table 1. He does not include the
annuity payments from income until you fully recovered $6,200 tax-free part of the lump-sum payment on line
your cost. After the cost was recovered, all payments 6 of Table 1. Assuming that David receives 10 annuity
became fully taxable. You cannot use another rule to payments of $1,200, he uses Table 1 to figure the tax-
again exclude amounts from income. able portion of his total annuity payments. David's Table
The Three-Year Rule was repealed for retirees who 1 is shown, later.
have an annuity starting date after July 1, 1986.
Annuity starting date before November 19, 1996. If
Alternative Annuity Option your annuity starting date was before November 19,
1996, and you chose the alternative annuity option, a
If you are a nondisability retiree under either CSRS or
different rule applied to determine the taxable and tax-
FERS, you may be able to choose the alternative an-
free parts of your lump-sum payment. Under that rule,
nuity option. This option is generally available only to
the tax-free part was in the same proportion to the
those with certain life-threatening illnesses or other
lump-sum payment as the reduction in your annuity
critical medical conditions. If you choose this option,
benefit under the option was to your original annuity
you will receive a lump-sum payment equal to your total
benefit without the option.
regular contributions to the retirement plan plus any
A different rule also applies to determine the tax-free
interest that applies. Your monthly annuity is then re-
part of your annuity payments. Under this rule, you do
duced by about 5 to 15 percent to adjust for this pay-
not reduce your cost in the plan (line 2 of Table 1) by
ment.
the part of the lump-sum payment you received tax free.
However, you must include that tax-free amount with
Lump-sum payment. If you choose the alternative other amounts previously recovered tax free (line 6 of
annuity option, the lump-sum payment you receive will Table 1) when limiting your total exclusion to your total
have a taxable part and a tax-free part. The tax-free cost.
amount represents part of your cost, and the taxable
amount represents part of the earnings on your annuity Reemployment after receiving a lump-sum
contract. To determine the taxable part of your lump- ! payment. If you chose to receive a lump-sum
CAUTION payment when you retired and then you were
sum payment, you must know the present value of your
annuity contract. reemployed by the federal government before retiring
again, your Form CSA 1099R may show only the
To find out the present value of your annuity amount of your contributions to your retirement plan
contract, call the IRS Actuarial Branch 1 at during your reemployment. If the amount on the form
202–622–7789 (not a toll-free call). does not include all your contributions, disregard it and
Page 7
Table 2. Worksheet for Lump-Sum Payment (Keep For Your Records)
See the instructions for the worksheet in Part II under Alter native Annuity Option.
1. Enter your lump-sum payment (your cost in the plan at the annuity starting date) $ 31,000
5. Taxable part of lump-sum payment (Net cost in the plan). Subtract line 4 from line
1. Include this amount in the total on line 16b of Form 1040 or line 11b of Form 1040A.
Also, enter this amount on line 2 of Table 1 in this publication $ 24,800
use your total contributions to figure the taxable part Form 1040. See Instructions for Form 5329 to deter-
of your annuity payments. mine if you must file the form.
If you owe the 10% additional tax, you must file
!
CAUTION
Form 1040.
Rollovers. You can roll over the taxable part of the
The 10% additional tax does not apply to the taxable
lump-sum payment to a traditional IRA or a qualified
amount of the lump-sum payment that is equal to your
retirement plan. OPM must withhold income tax of 20%
deductible medical expenses for the year (after re-
on the taxable part of the payment unless you have
duction by 71/2% of your adjusted gross income), even
OPM transfer that part directly to a traditional IRA or a
if you do not itemize deductions.
qualified retirement plan. See Rollover Rules later in
this part for more information. Example. You left government service at the age
If your contributions include a deemed deposit or of 50 and received a lump-sum distribution from your
redeposit, discussed later, OPM will make a direct TSP account of $16,000. When completing your tax
rollover only up to the net lump-sum payment amount. return you are not able to itemize, but you realize that
If the taxable amount is more than your net lump-sum you are subject to the 10% additional tax for early
payment, you can roll over the difference using your withdrawal. Total allowable medical expenses were
own funds within 60 days. If you do not roll over this $8,200 and your AGI for the tax year was $69,000. The
difference, you must include it as taxable income on 10% additional tax for early withdrawal would be figured
your income tax return. as shown in the following worksheet.
5-year or 10-year tax option or capital gain treat- 1. Enter the total lump-sum payment
received $ 16,000
ment. Your lump-sum payment does not qualify for the
5-year or 10-year tax option or capital gain treatment. 2. Enter your allowable medical
Do not report the lump-sum payment or any interest on expenses 8,200
Form 4972, Tax on Lump-Sum Distributions. This form 3. Enter your total Adjusted Gross
is used to elect these optional methods. For more in- Income (AGI) 69,000
formation, get Publication 575. 4. Multiply line 3 by 7.5% (.075) 5,175
5. Deductible Medical Expenses
Where to report. Add any actual or deemed payment Subtract line 4 from line 2 3,025
of your lump-sum credit (defined later) to the total for 12,975
line 16a, Form 1040, or line 11a, Form 1040A. Add the 6. Subtract line 5 from line 1
taxable part to the total for line 16b, Form 1040, or line 7. If you do not need to file Form 5329,
11b, Form 1040A, unless you roll over the taxable part multiply line 6 by 10% and enter on
to a traditional IRA or a qualified retirement plan. If you Form 1040, line 53 1,297.50
receive the lump-sum payment in two installments, in- 8. If you do need to file Form 5329,
clude any interest paid with the second installment on enter the amount from line 6 of this
line 8a of either Form 1040 or Form 1040A. worksheet on line 2 of Form 5329
1. Enter the total annuity received this year. Also add this amount to the total for Form 1040,
line 16a, or Form 1040A, line 11a $ 12,000.00
2. Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion 24,800.00
NOTE: If your annuity starting date was before this year and you completed this worksheet
last year, skip line 3 and enter the amount from line 4 of last year’s worksheet on line 4
below. Otherwise, go to line 3.
3. Enter the appropriate number from Table 1 below. But if your annuity starting date was
after 1997 and the payments are for your life and that of your beneficiary, enter the
appropriate number from Table 2 below 360
5. Multiply line 4 by the number of months for which this year’s payments were made. If
your annuity starting date was before 1987, enter this amount on line 8 below and skip
lines 6, 7, 10, and 11. Otherwise go to line 6 $ 688.90
6. Enter any amounts previously recovered tax free in years after 1986 -0-
9. Taxable annuity for year. Subtract line 8 from line 1. Enter the result, but not less than
zero. Also add this amount to the total for Form 1040, line 16b, or Form 1040A, line 11b.
If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount on
this line instead $ 11,311.10
Page 9
ment contributions were taken out of your pay. Deemed salary. They also include the regular contributions
redeposits (including interest) are for any refunds of withheld from your salary after you have the years of
retirement contributions that you received but have not service necessary for the maximum annuity allowed by
repaid. You will get credit for this prior service without law. Voluntary contributions are not the same as em-
actually making these deposits or redeposits. Your re- ployee contributions to the Thrift Savings Plan. See
duced (alternative) annuity will be figured as though, Thrift Savings Plan, later.
before retirement, you had made these deposits and Additional annuity benefit. If you choose an addi-
redeposits to OPM. The lump-sum payment actually tional annuity benefit from your voluntary contributions,
made to you will not include these amounts. it is treated separately from the annuity benefit that
comes from the regular contributions deducted from
your salary. This separate treatment applies for figuring
Lump-sum payment in installments. If you choose the amounts to be excluded from, and included in, gross
the alternative annuity option, you usually will receive income. It does not matter that you receive only one
the lump-sum payment in two equal installments. You monthly check covering both benefits. Each year you
will receive the first installment after you make the will receive Form CSA 1099R that will show how much
choice upon retirement. The second installment will be of your total annuity received in the past year was from
paid to you, with interest, in the next calendar year. each type of benefit.
(Exceptions to the installment rule are provided for Figure the taxable and tax-free parts of your addi-
cases of critical medical need.) tional monthly benefits from voluntary contributions us-
Even though the lump-sum payment is made in in- ing the rules that apply to regular CSRS and FERS
stallments, the overall tax treatment (explained at the annuities, as explained earlier in Part II.
beginning of this discussion) is the same as if the whole Refund of voluntary contributions. If you choose
payment were paid at once. If the payment has a tax- a refund of your voluntary contributions plus accrued
free part, you must treat the taxable part as received interest, the interest is taxable to you in the tax year it
first. is distributed unless you roll it over to a traditional IRA
or a qualified retirement plan. See Rollover Rules, later.
The interest does not qualify for the 5-year or 10-year
Federal Gift Tax tax option.
If, through the exercise or nonexercise of an election
or option, you provide an annuity for your beneficiary Example. You retired in November when you
at or after your death, you have made a gift. The gift reached the necessary age and years of service to re-
may be taxable for gift tax purposes. The value of the tire. You applied for an annuity based on your regular
gift is equal to the value of the annuity. contributions to the plan. You chose a refund of your
voluntary contributions plus interest.
On December 15, you received the refund. The in-
Joint and survivor annuity. If the gift is an interest in terest is fully taxable (no 5-year or 10-year tax option
a joint and survivor annuity where only you and your treatment is allowed) unless you roll it over to a tradi-
spouse can receive payments before the death of the tional IRA or a qualified retirement plan within 60 days.
last spouse to die, the gift will generally qualify for the
unlimited marital deduction. This will eliminate any gift Additional tax. The accrued interest included in the
tax liability with regard to that gift. refund of voluntary contributions and not rolled over into
If you provide survivor annuity benefits for someone a traditional IRA or a qualified retirement plan is gen-
other than your current spouse, such as your former erally subject to a 10% additional tax on early distribu-
spouse, the unlimited marital deduction will not apply. tions if the refund is made to you before the date you
This may result in a taxable gift. reach age 591/2. However, the tax does not apply if the
More information. For information about the gift refund is made after your retirement and you retired
tax, see Publication 950, Introduction to Estate and Gift during or after the calendar year in which you reached
Taxes. age 55.
Also, the 10% additional tax does not apply if you
retired at any age because of total and permanent dis-
Retirement During the Past Year ability. Nor does the additional tax apply to the accrued
interest that is equal to your deductible medical ex-
If you have recently retired, the following discussions penses for the year (the amount of medical expenses
covering annual leave, voluntary contributions, and that exceeds 71/2% of your adjusted gross income),
community property may apply to you. even if you do not itemize deductions. For information
about deductible medical expenses, see Publication
502. Use the worksheet below to determine the amount
Annual leave. Treat a payment for accrued annual of your lump-sum payment subject to the 10% addi-
leave received on retirement as a salary payment. It is tional tax.
taxable as wages in the tax year you receive it.
Page 15
If you were born in Your MRA is mental condition. A physician must certify that your
condition is expected to result in death or has lasted,
1947 or earlier 55 years
or can be expected to last, continuously for 12 months
1948 55 years, 2 months or more. Substantial gainful activity is the perform-
1949 55 years, 4 months ance of significant duties over a reasonable period of
1950 55 years, 6 months time while working for pay or profit, or in work generally
1951 55 years, 8 months done for pay or profit.
1952 55 years, 10 months
Mandatory retirement age. This is the age set by your
1953 to 1964 56 years
employer at which you would have had to retire if you
1965 56 years, 2 months had not become disabled. There is no mandatory re-
1966 56 years, 4 months tirement age for most federal employees. However,
1967 56 years, 6 months there is a mandatory retirement age for the following
1968 56 years, 8 months employees.
1969 56 years, 10 months 1) An air traffic controller appointed after May 15,
1970 or later 57 years 1972, by the Department of Transportation or the
Department of Defense, generally must retire by the
last day of the month in which he or she reaches
How to report. You must report all your disability age 56.
payments received before minimum retirement age on
line 7 (Form 1040 or Form 1040A). 2) A firefighter employed by the U.S. Government who
is otherwise eligible for immediate retirement gen-
Withholding. For income tax withholding purposes, a erally must retire by the last day of the month in
disability annuity is treated the same as a nondisability which he or she reaches age 55 or, if later, com-
annuity. This treatment also applies to disability pay- pletes 20 years of firefighter service.
ments received before minimum retirement age when 3) A law enforcement officer employed by the U.S.
these payments are shown as wages on your return. Government who is otherwise eligible for immediate
See Tax Withholding and Estimated Tax in Part I, ear- retirement generally must retire by the last day of
lier. the month in which he or she reaches age 57 or, if
later, completes 20 years of law enforcement ser-
Credit for the Elderly or the Disabled vice.
You can take the credit for the elderly or the disabled
if: Physician's statement. If you are under 65, you must
have your physician complete a statement certifying
1) You are a qualified individual, and that you are permanently and totally disabled. You must
keep this statement for your tax records. You can use
2) Your income is not more than certain limits. the Physician's Statement in the instructions for either
Schedule R (Form 1040) or Schedule 3 (Form 1040A).
You are a qualified individual for this credit if you are
a U.S. citizen or resident and, at the end of the tax year, Figuring the credit. If you figure the credit yourself,
you are: fill out the front of either Schedule R (if you are filing
1) Age 65 or older, or Form 1040) or Schedule 3 (if you are filing Form
1040A). Next fill out Part III of either Schedule R or
2) Under age 65 and you— Schedule 3.
If you want the Internal Revenue Service to figure
a) Retired on permanent and total disability, your tax and credits, including the credit for the elderly
b) Received taxable disability income, and or the disabled, see Publication 967, The IRS Will Fig-
ure Your Tax, and the instructions for Schedule R (Form
c) Did not reach mandatory retirement age (ex- 1040) or Schedule 3 (Form 1040A).
plained later) before the beginning of the tax
year. More information. For detailed information about this
credit, get Publication 524.
You are retired on permanent and total disability if
you were permanently and totally disabled when you
retired, and you retired on disability before the close of Other Benefits
the tax year. If you retired on disability before 1977 but The tax treatment of certain other benefits is explained
you were not permanently and totally disabled at the in this section.
time you retired, you can qualify for the credit if you
were permanently and totally disabled on January 1, Federal Employees' Compensation Act (FECA).
1976, or January 1, 1977. FECA payments you receive for personal injuries or
sickness resulting from the performance of your duties
Permanently and totally disabled. You are perma- are like workers' compensation. They are tax exempt
nently and totally disabled if you cannot engage in any and are not treated as disability income or annuities.
substantial gainful activity because of your physical or However, payments you receive while your claim is
Page 16
being processed, including pay while on sick leave and in respect of the decedent.” This income is taxable to
“continuation of pay” for up to 45 days, are taxable. the survivor or beneficiary. This treatment also applies
Sick pay or disability payments repaid. If you to payments for accrued annual leave.
repay sick leave or disability payments you received in
an earlier year to be eligible for nontaxable FECA Dependents of public safety officers. The Public
benefits, you can deduct the amount you repay. You Safety Officer's Benefits program provides a death
can claim the deduction whether you repay the amount benefit to eligible survivors of public safety officers
yourself or have the FECA payment sent directly to your whose death is the direct and proximate result of a
employing agency or the OPM. traumatic injury sustained in the line of duty.
Claim the deduction on Schedule A (Form 1040) as A public safety officer is a law enforcement officer,
a miscellaneous itemized deduction, subject to the firefighter, or member of a public rescue squad or am-
2%-of-adjusted-gross-income limit. It is considered a bulance crew.
business loss and may create a net operating loss if This program, administered through the Bureau of
your deductions for the year are more than your income Justice Assistance, may pay survivors a temporary
for the year. Get Publication 536, Net Operating benefit up to $3,000 if it finds that the death of the public
Losses, for more information. The repayment is not el- safety officer is one for which a final benefit will proba-
igible for the special tax credit that applies to repay- bly be paid. If there is no final payment, the recipient
ments over $3,000 of amounts received under a claim of the temporary benefit is liable for repayment. How-
of right. ever, the Bureau may not require all or part of the re-
If you repay sick leave or disability payments in the payment if it will cause a hardship. If that happens, that
same year you receive them, the repayment reduces amount is tax free.
the taxable sick pay or disability benefits you include in The death benefit is not includible in the decedent's
income. Do not deduct it separately. gross estate for federal estate tax purposes, or the
survivor's gross income for federal income tax pur-
Terrorist attack. Disability benefits you receive for in- poses.
juries resulting from a violent attack are tax exempt and
are not treated as disability income or annuities if: For more information on this program, you may
contact the Bureau of Justice Assistance by
1) The attack took place while you were a federal calling 1-(888)-744-6513, or (202) 307-0635 if
employee performing official duties outside the you are in the metropolitan Washington D.C. calling
United States, and area.
2) The Secretary of State determines it to have been
a terrorist attack. Additional information about this death benefit
is also available on the Internet at
Disability resulting from military service injuries. www.ojp.usdoj.gov/BJA.
If you received tax-exempt benefits from the Depart-
ment of Veterans Affairs for personal injuries resulting
from active service in the armed forces and later receive FERS Death Benefit
CSRS or FERS disability payments for disability arising You may be entitled to a special FERS death benefit if
from the same injuries, you cannot treat the disability you were the spouse of an active FERS employee who
payments as tax-exempt income. They are treated as died after at least 18 months of federal service. At your
a disability pension or annuity subject to the rules de- option, you can take the benefit in the form of a single
scribed earlier. payment or in the form of a special annuity payable over
a 3-year period.
Payment for annual leave. When you retire, any pay- The tax treatment of the special death benefit de-
ment for your unused annual leave is taxed as a salary pends on the option you choose and whether a FERS
payment. It is not treated as disability or annuity pay, survivor annuity is also paid.
but is taxed as wages in the tax year you receive the If you choose the single payment option, use the
payment. following rules.
Employee earnings. Salary or wages earned by a If you choose the 3-year annuity option, at least
federal employee but paid to the employee's survivor part of each monthly payment is tax free. Use the fol-
or beneficiary after the employee's death are “income lowing rules.
Page 17
1) If a FERS survivor annuity is not paid, the tax-free ments, the payments after the 360th will be fully taxa-
part of each monthly payment is an amount equal ble. If she dies before 360 payments have been made,
to the employee's FERS contributions (plus any al- a miscellaneous itemized deduction (not subject to the
lowable death benefit exclusion allocated to the 2%-of-adjusted-gross-income limit) will be allowed for
special death benefit) divided by 36. the unrecovered cost on her final income tax return.
2) If a FERS survivor annuity is paid, allocate the
employee's FERS contributions (plus any allowable Surviving spouse with child. If the survivor benefits
death benefit exclusion allocated to the FERS include both a life annuity for the surviving spouse and
benefits) between the 3-year annuity and the sur- one or more temporary annuities for the employee's
vivor annuity. Make the allocation in the same pro- children, an additional step is needed under the Sim-
portion that the expected return from each annuity plified Method to allocate the monthly exclusion among
bears to the total expected return from both annui- the beneficiaries correctly.
ties. Divide the amount allocated to the 3-year an- Figure the total monthly exclusion for all beneficiaries
nuity by 36. The result is the tax-free part of each by completing lines 2 through 4 of the worksheet in
monthly payment of the 3-year annuity. Table 1 as if only the surviving spouse received an
annuity. Then, to figure the monthly exclusion for each
CSRS or FERS Survivor Annuity beneficiary, multiply line 4 of the worksheet by a frac-
If you receive a CSRS or FERS survivor annuity, you tion. For any beneficiary, the numerator of the fraction
can recover the employee's cost tax free. The employ- is that beneficiary's monthly annuity, and the denomi-
ee's cost is the total of the retirement plan contributions nator of the fraction is the total of the monthly annuity
that were taken out of his or her pay. payments to all the beneficiaries.
How you figure the tax-free recovery of the cost de- The ending of a child's temporary annuity does not
pends on your annuity starting date. This is the day affect the total monthly exclusion figured under the
after the date of the employee's death. The methods to Simplified Method. The total exclusion merely needs to
use are the same as those described near the begin- be reallocated at that time among the remaining ben-
ning of Part II under Recovering your cost tax free. eficiaries. If only the surviving spouse is left drawing
The following discussions cover only the Simplified an annuity, the surviving spouse is entitled to the entire
Method. You can use this method if your annuity monthly exclusion as figured in the worksheet.
starting date is after July 1, 1986. You must use this
method if your annuity starting date is after November Example. Assume the same facts as in the Diane
18, 1996. Under the Simplified Method, each of your Greene example, earlier, except that the Greenes had
monthly annuity payments is made up of two parts: the a son, Robert, who was age 15 at the time of his father's
tax-free part that is a return of the employee's cost and death. Robert is entitled to a $500 per month temporary
the taxable balance. The tax-free part remains the annuity until he reaches age 18 (age 22, if he remains
same, even if your annuity is increased. However, see a full-time student and does not marry).
Exclusion limit, later. In completing the Simplified Method Worksheet,
Diane fills out the entries through line 4 exactly as
Surviving spouse with no children receiving annui- shown in the earlier example. That is, she includes on
ties. Under the Simplified Method, you figure the tax- line 1 only the amount of the annuity she herself re-
free part of each full monthly payment by dividing your ceived and she uses on line 3 the 360 factor for her
cost by a number of months based on your age. This age. After arriving at the $100 monthly exclusion on line
number will differ depending on whether your annuity 4, however, Diane allocates it between her own annuity
starting date is on or before November 18, 1996, or and that of her son.
later. To use the Simplified Method, complete the To find how much of the monthly exclusion to allo-
worksheet in Table 1, near the end of this publication. cate to her own annuity, Diane multiplies the $100
Specific instructions for Table 1 are given in Part II un- monthly exclusion by the fraction $1,500 (her monthly
der Simplified Method. annuity) over $2,000 (the total of her $1,500 and
Robert's $500 annuities). She enters the result, $75,
Example. Diane Greene, age 48, began receiving just below the entry space for line 4. She completes
a $1,500 monthly CSRS annuity in March 1999 upon the worksheet by entering $750 on lines 5 and 8 and
the death of her husband. Her husband was a federal $14,250 on line 9.
employee when he died. She received 10 payments in A second worksheet is completed for Robert's an-
1999. Her husband had contributed $36,000 to the re- nuity. On line 1, he enters $5,000 as the total annuity
tirement plan. received. Lines 2, 3, and 4 are the same as those on
Diane must use the Simplified Method. Her com- his mother's worksheet. In allocating the $100 monthly
pleted worksheet (Table 1) is shown on the next page. exclusion on line 4 to his annuity, Robert multiplies it
To complete line 3, she used Table 1 at the bottom of by the fraction $500 over $2,000. His resulting monthly
the worksheet and found the number in the last column exclusion is $25. His exclusion for the year (line 8) is
opposite the age range that includes her age. Diane $250 and his taxable annuity for the year (line 9) is
keeps a copy of the completed worksheet for her rec- $4,750.
ords. It will help her figure her taxable annuity in later Diane and Robert only need to complete lines 10
years. and 11 on a single worksheet to keep track of their
Diane's tax-free monthly amount is $100 (line 4 of the unrecovered cost for next year. These lines are exactly
worksheet). If she lives to collect more than 360 pay- as shown in the earlier example.
Page 18
Table 1. Simplified Method Worksheet (Keep For Your Records)
See the instructions for the worksheet in Part II under Simplified Method.
1. Enter the total annuity received this year. Also add this amount to the total for Form 1040,
line 16a, or Form 1040A, line 11a $ 15,000
2. Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion 36,000
NOTE: If your annuity starting date was before this year and you completed this worksheet
last year, skip line 3 and enter the amount from line 4 of last year’s worksheet on line 4
below. Otherwise, go to line 3.
3. Enter the appropriate number from Table 1 below. But if your annuity starting date was
after 1997 and the payments are for your life and that of your beneficiary, enter the
appropriate number from Table 2 below 360
5. Multiply line 4 by the number of months for which this year’s payments were made. If
your annuity starting date was before 1987, enter this amount on line 8 below and skip
lines 6, 7, 10, and 11. Otherwise go to line 6 $ 1,000
6. Enter any amounts previously recovered tax free in years after 1986 0
9. Taxable annuity for year. Subtract line 8 from line 1. Enter the result, but not less than
zero. Also add this amount to the total for Form 1040, line 16b, or Form 1040A, line 11b.
If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount on
this line instead $ 14,000
Page 19
When Robert's temporary annuity ends, the compu- public safety officer. Public safety officers include police
tation of the total monthly exclusion will not change. The and law enforcement officers, fire fighters, ambulance
only difference will be that Diane will then claim the full crews, and rescue squads. The exclusion does not
exclusion against her annuity alone. apply if your actions were a substantial contributing
factor to the death of the officer. It also does not apply
Annuity for a surviving child only. A method similar if:
to the Simplified Method also can be used to figure the
taxable and nontaxable parts of a temporary annuity (or • The death was caused by the intentional misconduct
annuities) for one or more surviving children when there of the officer or by the officer's intention to cause
is no surviving spouse annuity. To use this method, his or her own death,
divide the deceased employee's cost by the number of • The officer was voluntarily intoxicated at the time
months from the child's annuity starting date until the of death, or
date the child will reach age 22. The result is the
monthly exclusion. (But the monthly exclusion cannot • The officer was performing his or her duties in a
be more than the monthly annuity payment. You can grossly negligent manner at the time of death.
carry over unused exclusion amounts to apply against
future annuity payments.) The special death benefit paid to the spouse of
More than one child. If there is more than one child !
CAUTION
a FERS employee (see FERS Death Benefit,
earlier) is not eligible for this exclusion.
entitled to a temporary annuity (and no surviving
spouse annuity), divide the cost by the number of
months of payments until the date the youngest child Lump-Sum CSRS or FERS Payment
will reach age 22. This monthly exclusion must then be If a federal employee dies before retiring and leaves
allocated among the children in proportion to their no one eligible for a survivor annuity, the estate or other
monthly annuity payments, like the exclusion shown in beneficiary will receive a lump-sum payment from the
the previous example. CSRS or FERS. This single payment is made up of the
Disabled child. If a child otherwise entitled to a regular contributions to the retirement fund plus accrued
temporary annuity was permanently disabled at the interest, if any, to the extent not already paid to the
annuity starting date (and there is no surviving spouse employee.
annuity), that child is treated for tax purposes as re- The beneficiary is taxed, in the year a lump sum is
ceiving a lifetime annuity, like a surviving spouse. The distributed or made available, only on the amount of
child must complete line 3 of the Simplified Method any accrued interest. The payment of the employee's
Worksheet using a number in Table 1 at the bottom of contributions to the fund is not taxed.
the worksheet corresponding to the child's age at the
annuity starting date. If another child (or children) is also Lump-sum payment at end of survivor annuity. If
entitled to a temporary annuity, an allocation like the an annuity is paid to the federal employee's survivor
one shown under Surviving spouse with child, earlier, and the survivor annuity ends before an amount equal
must be made to determine each child's share of the to the deceased employee's contributions plus any in-
exclusion. terest has been paid out, the rest of the contributions
plus any interest will be paid in a lump sum to the em-
Exclusion limit. If your annuity starting date is after ployee's estate or other beneficiary. Generally, this
1986, the most that can be recovered tax free is the beneficiary will not have to include any of the lump sum
cost of the annuity. Once the total of your exclusions in gross income because, when it is added to the
equals the cost when annuity payments began, your amount of the annuity previously received that was
entire annuity is taxable. If your annuity starting date is excludable, it still will be less than the employee's total
before 1987, the tax-free part of each whole monthly contributions (plus any death benefit exclusion, if it ap-
payment remains the same each year you receive plied).
payments—even if you outlive the number of months
used on line 3 of the Simplified Method Worksheet. The To figure the taxable amount, if any, use the
total exclusion may be more than the cost of the an- following worksheet.
nuity.
Lump-Sum Payment at End of Survivor Annuity
Deduction of unrecovered cost. If the annuity starting 1. Enter the lump-sum payment $
date is after July 1, 1986, and death occurs before all 2. Enter the tax-free annuity payments
the cost is recovered tax free, the unrecovered cost can previously received
be claimed as a miscellaneous itemized deduction (not 3. Add lines 1 and 2
subject to the 2%-of-adjusted-gross-income limit) for
4. Enter the employee’s total cost
the beneficiary's last tax year.
5. Taxable amount. Subtract line 4 from
line 3. Enter the result, but not less than
Survivors of Slain Public Safety Officers
zero
Generally, if you receive a survivor annuity as the
spouse, former spouse, or child of a public safety officer
killed after 1996 in the line of duty, you can exclude it Example. At the time of your brother's death in
from your gross income. The annuity is excludable to December 1998, he was employed by the federal gov-
the extent that it is due to the officer's service as a ernment and had contributed $45,000 to the CSRS. His
Page 20
widow received $6,600 in survivor annuity payments If the entire TSP account balance is paid to the
before she died in 1999. She had used the Simplified beneficiaries in the same calendar year, the payments
Method for reporting her annuity and properly excluded might qualify for the 5-year or 10-year tax option. See
$1,000 from gross income. Publication 575 for details. Also see Important Tax In-
Since only $6,600 of the guaranteed amount of formation About Thrift Savings Plan Death Benefit
$45,000 (your brother's contributions) was paid as an Payments (Rev. March 1998), which is available from
annuity, the balance of $38,400 was paid to you in a the TSP.
lump sum as your brother's sole beneficiary. You figure
the taxable amount of this payment as follows. The above TSP document is also available on
the Internet at www.tsp.gov. Select “Forms and
Lump-Sum Payment at End of Survivor Annuity Publications” and then select “Other Docu-
$ 38,000 ments.”
1. Enter the lump-sum payment
2. Enter the tax-free annuity payments
previously received 1,000 Federal Estate Tax
3. Add lines 1 and 2 39,000 Form 706, United States Estate (and Generation-
4. Enter the employee’s total cost 45,000 Skipping Transfer) Tax Return, must be filed for the
estate of a citizen or resident of the United States who
5. Taxable amount. Subtract line 4 from died in 1999 if the gross estate is more than $650,000.
line 3. Enter the result, but not less than Included in this $650,000 are any taxable gifts made
zero 0
by the decedent after 1976, and the specific exemption
allowed for gifts by the decedent after September 8,
Voluntary contributions. If a CSRS employee dies 1976, and before 1977.
before retiring from government service, any voluntary The gross estate generally includes the value of all
contributions to the retirement fund cannot be used to property beneficially owned by the decedent at the time
provide an additional annuity to the survivors. Instead, of death. Examples of property included in the gross
the voluntary contributions plus any accrued interest estate are salary or annuity payments that had accrued
will be paid in a lump sum to the estate or other bene- to an employee or retiree, but which were not paid be-
ficiary. The beneficiary reports this payment minus the fore death, and the balance in the decedent's TSP ac-
employee's total voluntary contributions as income for count.
the year distributed or made available. This excess may The gross estate usually also includes the value of
qualify for capital gain treatment or the 5-year or the death and survivor benefits payable under the
10-year tax option. CSRS or the FERS. If the federal employee died leav-
Generally, the taxable part of a lump-sum distribution ing no one eligible to receive a survivor annuity, the
from active participation in a year before 1974 may lump sum (representing the employee's contribution to
qualify for capital gain treatment. The part from active the system plus any accrued interest) payable to the
participation after 1973 is taxed as ordinary income. estate or other beneficiary is included in the employee's
The beneficiary can choose to have this distribution gross estate.
taxed under the 5-year or 10-year tax option. This
treatment applies only if: Marital deduction. The estate tax marital deduction is
a deduction from the gross estate of the value of prop-
1) Regular annuity benefits cannot be paid under the erty that is included in the gross estate but that passes,
system, and or has passed, to the surviving spouse. Generally, there
is no limit on the amount of the marital deduction.
2) The beneficiary also receives a lump-sum payment Community property passing to the surviving spouse
of the compulsory contributions plus interest within qualifies for the marital deduction.
the same tax year as the voluntary contributions.
More information. For more information, get Publica-
For more information, see Lump-Sum Distributions in tion 950, Introduction to Estate and Gift Taxes, and
Publication 575. Publication 559, Survivors, Executors, and Administra-
tors.
Thrift Savings Plan
The payment you receive as the beneficiary of a dece-
dent's Thrift Savings Plan (TSP) account is fully taxable.
However, if you are the decedent's surviving spouse,
Part V
you generally can roll over the payment to a traditional Rules for Survivors
IRA tax free. (You cannot make a rollover to another
qualified plan.) If you do not choose a direct rollover of Federal Retirees
of the decedent's TSP account, mandatory 20% income This part of the publication is for survivors of federal
tax withholding will apply. For more information, see retirees. It explains how to treat amounts you receive
Rollover Rules, in Part II. If you are not the surviving because of the retiree's death.
spouse, the payment is not eligible for rollover treat-
ment. The TSP will withhold 10% of the payment for Decedent's retirement benefits. Retirement benefits
income tax, unless you give the TSP a Form W-4P to accrued and payable to a CSRS or FERS retiree before
choose not to have tax withheld. death, but paid to you as a survivor, are taxable in the
Page 21
same manner and to the same extent these benefits death. He chose to report his annuity using the Simpli-
would have been taxable had the retiree lived to receive fied Method. Under that method, $150 of each payment
them. he received was a tax-free recovery of his $45,000 cost.
John received a total of 22 monthly payments and re-
CSRS or FERS covered $3,300 of his cost tax free before his death in
1999. At John's death, Kate began receiving an annuity
Survivor Annuity of $840 per month and their children, Sam and Lou,
CSRS or FERS annuity payments you receive as the began receiving temporary annuities of $330 each per
surviving spouse of a federal retiree are fully taxable month. Kate must allocate the $150 tax-free monthly
or are partly taxable under either the General Rule or amount among the three annuities.
the Simplified Method. Kate allocates $84 ($150 × $840/$1,500) of the tax-
free monthly amount to her annuity and $33 ($150 ×
Cost recovered. If the retiree reported the annuity $330/$1,500) to each child's annuity. Beginning the
under the Three-Year Rule and recovered tax free all month in which either child is no longer eligible for an
of his or her cost before dying, your survivor annuity annuity, she will reallocate $108 ($150 × $840/$1,170)
payments are fully taxable. This is also true if the of the $150 tax-free monthly amount to her annuity and
retiree had an annuity starting date after 1986, reported $42 ($150 × $330/$1,170) to the other child's annuity.
the annuity under the General Rule or the Simplified
Method, and had fully recovered his or her cost tax free.
Annuity for surviving child only. If the survivor
General Rule. If the retiree was reporting the annuity benefits include only a temporary annuity for the
under the General Rule, use the same exclusion per- retiree's child, allocate the unrecovered cost over the
centage that the retiree used. Apply the exclusion per- number of months from the date the annuity started until
centage to the amount specified as your survivor an- the child reaches age 22. If more than one temporary
nuity at the retiree's annuity starting date. Do not apply annuity is paid, allocate the cost over the number of
the exclusion percentage to any cost-of-living increases months until the youngest child reaches age 22, and
made after that date. Those increases are fully taxable. allocate the tax-free monthly amount among the annu-
For more information about the General Rule, get ities in proportion to the monthly annuity payments.
Publication 939.
Simplified Method. If the retiree was reporting the Lump-Sum CSRS or FERS Payment
annuity under the Simplified Method, your tax-free
If a deceased retiree has no beneficiary eligible to re-
monthly amount is the same as the retiree's monthly
ceive a survivor annuity, the retiree's unrecovered
exclusion (from line 4 of the Simplified Method Work-
CSRS or FERS contributions plus accrued interest, if
sheet). This amount remains fixed even if the monthly
any, will be paid in a lump sum to the estate or other
payment is increased or decreased. A cost-of-living in-
beneficiary. The estate or other beneficiary will rarely
crease in your survivor annuity payments does not
have to include any part of the lump sum in gross in-
change the amount you can exclude from gross in-
come. The taxable amount is figured as follows.
come.
Lump-Sum Payment to Estate or Other Beneficiary
Exclusion limit. If the retiree's annuity starting date 1. Enter the amount of the lump-sum
was before 1987, you can exclude the tax-free amount payment $
from all the annuity payments you receive. This in- 2. Enter the amount of annuity received
cludes any payments received after you recover the tax-free by the retiree
annuity cost tax free.
If the retiree's annuity starting date is after 1986, you 3. Add line 1 and line 2
can exclude a tax-free amount only until you recover the 4. Enter the total contributions
annuity cost tax free. The annuity payments you receive 5. Taxable amount. Subtract line 4 from
after you recover the annuity cost tax free are fully line 3. Enter the result, but not less than
taxable. zero
Surviving spouse with child. If the survivor benefits The taxable amount, if any, may qualify for capital
include both a life annuity for the surviving spouse and gain treatment or the 5-year or 10-year tax option.
one or more temporary annuities for the retiree's chil- Generally, that part of a lump-sum distribution from
dren, the tax-free monthly amount that would otherwise active participation in a year before 1974 may qualify
apply to the life annuity must be allocated among the for capital gain treatment, while the part from active
beneficiaries. To figure the tax-free monthly amount for participation after 1973 is taxed as ordinary income.
each beneficiary, multiply it by a fraction. The numer- The beneficiary can choose to have this ordinary in-
ator of the fraction is the beneficiary's monthly annuity, come part taxed under the 5-year or 10-year tax option.
and the denominator of the fraction is the total of the If the beneficiary also receives a lump-sum payment
monthly annuity payments to all the beneficiaries. of unrecovered voluntary contributions plus interest, this
treatment applies only if the payment is received within
Example. John retired in 1997 and began receiving the same tax year. For more information, see Lump-
a $1,147 per month CSRS retirement annuity with a Sum Distributions in Publication 575.
survivor annuity payable to his wife, Kate, upon his
Page 22
Voluntary Contributions and payable to a retiree before death, but paid to you
as a survivor.
If you receive an additional survivor annuity benefit from If you are required to include income in respect of a
voluntary contributions to the CSRS, treat it separately decedent in gross income for any tax year, you can
from the annuity that comes from regular contributions. deduct for the same tax year the portion of the federal
If, before death, the retiree was receiving additional estate tax imposed on the decedent's estate that is from
annuity payments from voluntary contributions and was the inclusion in the estate of the right to receive that
reporting them under the General Rule, use the retiree's amount. For this purpose, if the decedent died after the
exclusion percentage. Apply the exclusion percentage annuity starting date, the taxable portion of a survivor
to your additional survivor annuity benefits as of the annuity you receive (other than a temporary annuity for
retiree's annuity starting date. If the retiree was report- a child) is considered income in respect of a decedent.
ing the payments under the Simplified Method, use the The federal estate tax you can deduct is determined
same monthly exclusion amount that the retiree used. by comparing the actual federal estate tax and the tax
If the annuity starting date was after 1986, the total that would have been paid if the income in respect of
exclusion is limited to the amount of the voluntary con- the decedent were not included in the gross estate.
tributions. After the total of these contributions has been Income tax deductions for the estate tax on the value
recovered tax free, the additional annuity payments are of your survivor annuity will be spread over the period
fully taxable. of your life expectancy. The deductions cannot be taken
Each year you will receive Form CSF 1099R that beyond your life expectancy. Moreover, if you should
will show how much of your total annuity received in the die before the end of this period, there is no compen-
past year was from each type of benefit. sating adjustment for the unused deductions.
If the income in respect of the decedent is ordinary
Lump-sum payment. If at the time of the retiree's income, the estate tax must be deducted as a miscel-
death there was no one eligible to receive a survivor laneous itemized deduction (not subject to the
annuity, the retiree's unrecovered voluntary contribu- 2%-of-adjusted-gross-income limit).
tions plus any interest will be paid in a lump sum to the For more information, see Income in Respect of the
estate or other beneficiary. Part of the lump-sum pay- Decedent in Publication 559, Survivors, Executors, and
ment may be taxable to the beneficiary. To figure the Administrators.
taxable amount, add the lump-sum payment to any
tax-free amounts received by the retiree and subtract
the retiree's total voluntary contributions. The excess,
if any, is taxable. See Lump-Sum CSRS or FERS
Payment, earlier.
How To Get More Information
You can order free publications and forms, ask tax
questions, and get more information from the IRS in
Thrift Savings Plan several ways. By selecting the method that is best for
If you receive a payment from the TSP account of a you, you will have quick and easy access to tax help.
deceased federal retiree, the payment is fully taxable.
However, if you are the retiree's surviving spouse, you Free tax services. To find out what services are
generally can roll over the otherwise taxable payment available, get Publication 910, Guide to Free Tax Ser-
to a traditional IRA tax free. (You cannot make a vices. It contains a list of free tax publications and an
rollover to another qualified plan.) For more information, index of tax topics. It also describes other free tax in-
see Rollover Rules in Part II, earlier. If you are not the formation services, including tax education and assist-
surviving spouse, the payment is not eligible for rollover ance programs and a list of TeleTax topics.
treatment.
If the retiree chose to receive his or her account Personal computer. With your personal com-
balance as an annuity, the payments you receive as the puter and modem, you can access the IRS on
retiree's survivor are fully taxable when you receive the Internet at www.irs.gov. While visiting our
them, whether they are received as annuity payments web site, you can select:
or as a cash refund of the remaining value of the
amount used to purchase the annuity. • Frequently Asked Tax Questions (located under
Taxpayer Help & Ed) to find answers to questions
you may have.
Federal Estate Tax
A federal estate tax return may have to be filed for the • Forms & Pubs to download forms and publications
estate of the retired employee. See Federal Estate Tax or search for forms and publications by topic or
in Part IV. keyword.
• Fill-in Forms (located under Forms & Pubs) to enter
Income Tax Deduction information while the form is displayed and then
print the completed form.
for Estate Tax Paid
Any income that a decedent had a right to receive and • Tax Info For You to view Internal Revenue Bulletins
could have received had death not occurred and that published in the last few years.
was not properly includible in the decedent's final in- • Tax Regs in English to search regulations and the
come tax return is treated as income in respect of a Internal Revenue Code (under United States Code
decedent. This includes retirement benefits accrued (USC)).
Page 23
• Digital Dispatch and IRS Local News Net (both lo- Walk-in. You can walk in to many post offices,
cated under Tax Info For Business) to receive our libraries, and IRS offices to pick up certain
electronic newsletters on hot tax issues and news. forms, instructions, and publications. Also,
some libraries and IRS offices have:
• Small Business Corner (located under Tax Info For
Business) to get information on starting and oper- • An extensive collection of products available to print
ating a small business. from a CD-ROM or photocopy from reproducible
proofs.
You can also reach us with your computer using File
Transfer Protocol at ftp.irs.gov.
• The Internal Revenue Code, regulations, Internal
Revenue Bulletins, and Cumulative Bulletins avail-
able for research purposes.
Page 24
Table 1. Simplified Method Worksheet (Keep For Your Records)
See the instructions for the worksheet in Part II under Simplified Method.
1. Enter the total annuity received this year. Also add this amount to the total for Form 1040,
line 16a, or Form 1040A, line 11a $
2. Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion
NOTE: If your annuity starting date was before this year and you completed this worksheet
last year, skip line 3 and enter the amount from line 4 of last year’s worksheet on line 4
below. Otherwise, go to line 3.
3. Enter the appropriate number from Table 1 below. But if your annuity starting date was
after 1997 and the payments are for your life and that of your beneficiary, enter the
appropriate number from Table 2 below
9. Taxable annuity for year. Subtract line 8 from line 1. Enter the result, but not less than
zero. Also add this amount to the total for Form 1040, line 16b, or Form 1040A, line 11b.
If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount on
this line instead $
10. Add lines 6 and 8
Page 25
Table 2. Worksheet for Lump-Sum Payment (Keep For Your Records)
See the instructions for the worksheet in Part II under Alter native Annuity Option.
1. Enter your lump-sum payment (your cost in the plan at the annuity starting date) $
5. Taxable part of lump-sum payment (Net cost in the plan). Subtract line 4 from line
1. Include this amount in the total on line 16b of Form 1040 or line 11b of Form 1040A.
Also, enter this amount on line 2 of Table 1 in this publication
Page 26
Index
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See How To Get More Information for a variety of ways to get publications,
Tax Publications for Individual Taxpayers including by computer, phone, and mail.
General Guides 530 Tax Information for First-Time 901 U.S. Tax Treaties
Homeowners 907 Tax Highlights for Persons with
1 Your Rights as a Taxpayer 531 Reporting Tip Income Disabilities
17 Your Federal Income Tax (For 533 Self-Employment Tax 908 Bankruptcy Tax Guide
Individuals) 534 Depreciating Property Placed in 911 Direct Sellers
225 Farmer’s Tax Guide Service Before 1987 915 Social Security and Equivalent
334 Tax Guide for Small Business 537 Installment Sales Railroad Retirement Benefits
509 Tax Calendars for 2000 541 Partnerships 919 How Do I Adjust My Tax Withholding?
553 Highlights of 1999 Tax Changes 544 Sales and Other Dispositions of 925 Passive Activity and At-Risk Rules
595 Tax Highlights for Commercial Assets 926 Household Employer’s Tax Guide
Fishermen 547 Casualties, Disasters, and Thefts 929 Tax Rules for Children and
910 Guide to Free Tax Services (Business and Nonbusiness) Dependents
550 Investment Income and Expenses 936 Home Mortgage Interest Deduction
Specialized Publications 551 Basis of Assets 946 How To Depreciate Property
552 Recordkeeping for Individuals 947 Practice Before the IRS and Power
3 Armed Forces’ Tax Guide 554 Older Americans’ Tax Guide of Attorney
378 Fuel Tax Credits and Refunds 555 Community Property 950 Introduction to Estate and Gift Taxes
463 Travel, Entertainment, Gift, and Car 556 Examination of Returns, Appeal 967 IRS Will Figure Your Tax
Expenses Rights, and Claims for Refund 968 Tax Benefits for Adoption
501 Exemptions, Standard Deduction, 559 Survivors, Executors, and
and Filing Information 970 Tax Benefits for Higher Education
Administrators 971 Innocent Spouse Relief
502 Medical and Dental Expenses 561 Determining the Value of Donated
503 Child and Dependent Care Expenses 972 Child Tax Credit
Property 1542 Per Diem Rates
504 Divorced or Separated Individuals 564 Mutual Fund Distributions
505 Tax Withholding and Estimated Tax 1544 Reporting Cash Payments of Over
570 Tax Guide for Individuals With $10,000
508 Tax Benefits for Work-Related Income From U.S. Possessions
Education 1546 The Taxpayer Advocate Service of
575 Pension and Annuity Income the IRS
514 Foreign Tax Credit for Individuals 584 Casualty, Disaster, and Theft Loss
516 U.S. Government Civilian Employees Workbook (Personal-Use Property) Spanish Language Publications
Stationed Abroad 587 Business Use of Your Home
517 Social Security and Other (Including Use by Day-Care 1SP Derechos del Contribuyente
Information for Members of the Providers) 579SP Cómo Preparar la Declaración de
Clergy and Religious Workers 590 Individual Retirement Arrangements Impuesto Federal
519 U.S. Tax Guide for Aliens (IRAs) (Including Roth IRAs and 594SP Comprendiendo el Proceso de Cobro
520 Scholarships and Fellowships Education IRAs) 596SP Crédito por Ingreso del Trabajo
521 Moving Expenses 593 Tax Highlights for U.S. Citizens and 850 English-Spanish Glossary of Words
523 Selling Your Home Residents Going Abroad and Phrases Used in Publications
524 Credit for the Elderly or the Disabled 594 Understanding the Collection Process Issued by the Internal Revenue
525 Taxable and Nontaxable Income 596 Earned Income Credit (EIC) Service
526 Charitable Contributions 721 Tax Guide to U.S. Civil Service 1544SP Informe de Pagos en Efectivo en
Retirement Benefits Exceso de $10,000 (Recibidos en
527 Residential Rental Property una Ocupación o Negocio)
529 Miscellaneous Deductions
See How To Get More Information for a variety of ways to get forms, including by computer,
Commonly Used Tax Forms fax, phone, and mail. For fax orders only, use the catalog numbers when ordering.
Catalog Catalog
Form Number and Title Number Form Number and Title Number
1040 U.S. Individual Income Tax Return 11320 2106 Employee Business Expenses 11700
Sch A & B Itemized Deductions & Interest and 11330 2106-EZ Unreimbursed Employee Business 20604
Ordinary Dividends Expenses
Sch C Profit or Loss From Business 11334 2210 Underpayment of Estimated Tax by 11744
Sch C-EZ Net Profit From Business 14374 Individuals, Estates, and Trusts
Sch D Capital Gains and Losses 11338 2441 Child and Dependent Care Expenses 11862
Sch D-1 Continuation Sheet for Schedule D 10424 2848 Power of Attorney and Declaration 11980
Sch E Supplemental Income and Loss 11344 of Representative
Sch EIC Earned Income Credit 13339 3903 Moving Expenses 12490
Sch F Profit or Loss From Farming 11346 4562 Depreciation and Amortization 12906
Sch H Household Employment Taxes 12187 4868 Application for Automatic Extension of Time 13141
Sch J Farm Income Averaging 25513 To File U.S. Individual Income Tax Return
4952 Investment Interest Expense Deduction 13177
Sch R Credit for the Elderly or the Disabled 11359
Sch SE Self-Employment Tax 11358 5329 Additional Taxes Attributable to IRAs, Other 13329
Qualified Retirement Plans, Annuities,
1040A U.S. Individual Income Tax Return 11327 Modified Endowment Contracts, and MSAs
Sch 1 Interest and Ordinary Dividends for 12075
Form 1040A Filers 6251 Alternative Minimum Tax–Individuals 13600
Sch 2 Child and Dependent Care 10749 8283 Noncash Charitable Contributions 62299
Expenses for Form 1040A Filers 8582 Passive Activity Loss Limitations 63704
Sch 3 Credit for the Elderly or the 12064 8606 Nondeductible IRAs 63966
Disabled for Form 1040A Filers 8812 Additional Child Tax Credit 10644
1040EZ Income Tax Return for Single and 11329 8822 Change of Address 12081
Joint Filers With No Dependents 8829 Expenses for Business Use of Your Home 13232
1040-ES Estimated Tax for Individuals 11340 8863 Education Credits 25379
1040X Amended U.S. Individual Income Tax Return 11360
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