Professional Documents
Culture Documents
US Internal Revenue Service: p721 - 2001
US Internal Revenue Service: p721 - 2001
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Important Changes
for 2002
Rollovers. For distributions made after 2001, you can roll
over certain amounts from the CSRS, the FERS, or the
TSP, to a tax-sheltered annuity plan (403(b) plan) or a
state or local government section 457 deferred compensa-
tion plan. See Rollover Rules in Part II.
Time for making rollover. The 60-day period for com-
pleting the rollover of an eligible distribution may be ex-
tended for distributions made after 2001 in certain cases of
casualty, disaster, or other events beyond your reasonable
control. See Rollover Rules in Part II.
Rollover by surviving spouse. You may be able to roll
over a distribution made after 2001 you receive as the
surviving spouse of a deceased employee into a qualified
retirement plan or a traditional IRA. See Rollover Rules in
Part II.
Important Reminder
Photographs of missing children. The Internal Reve-
nue Service is a proud partner with the National Center for
Missing and Exploited Children. Photographs of missing
children selected by the Center may appear in this publica-
tion on pages that would otherwise be blank. You can help
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bring these children home by looking at the photographs Form (and Instructions)
and calling 1–800–THE–LOST (1–800–843–5678) if
❏ CSA 1099R Statement of Annuity Paid
you recognize a child.
❏ CSF 1099R Statement of Survivor Annuity Paid
❏ 1099–R Distributions From Pensions, Annuities,
Introduction Retirement or Profit-Sharing Plans, IRAs,
Insurance Contracts, etc.
This publication explains how the federal income tax rules
apply to civil service retirement benefits received by retired ❏ 5329 Additional Taxes on Qualified Plans (including
federal employees (including those disabled) or their survi- IRAs) and Other Tax-Favored Accounts
vors. These benefits are paid primarily under the Civil
See How To Get Tax Help near the end of this publica-
Service Retirement System (CSRS) or the Federal Em-
tion for information about getting publications and forms.
ployees Retirement System (FERS).
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choice. The choice for no withholding remains in effect until OPM’s Retirement Information Office. (See the preceding
you change it. These withholding rules also apply to a paragraph for telephone numbers.)
disability annuity, whether received before or after mini-
mum retirement age. Withholding from certain lump-sum payments. If you
If you choose not to have tax withheld, or if you do not leave the federal government before becoming eligible to
have enough tax withheld, you may have to make esti- retire and you apply for a refund of your CSRS or FERS
mated tax payments. contributions, or you die without leaving a survivor eligible
You may owe a penalty if the total of your with- for an annuity, you or your beneficiary will receive a distri-
bution of your contributions to the retirement plan plus any
!
CAUTION
held tax and estimated tax does not cover most of
the tax shown on your return. Generally, you will interest payable. Tax will be withheld at a 20% rate on the
owe the penalty if the additional tax you must pay with your interest distributed. However, tax will not be withheld on
return is $1,000 or more and more than 10% of the tax the interest if you roll it over to a traditional IRA or a
shown on your return. For more information, including qualified plan by having OPM transfer it directly to the
exceptions to the penalty, see chapter 4 of Publication 505, traditional IRA or other plan. See Rollover Rules in Part II.
Tax Withholding and Estimated Tax. If you receive only your contributions, no tax will be with-
held.
If you retire and elect to receive a reduced annuity and a
Form CSA 1099R. Form CSA 1099R is mailed to you by lump-sum payment under the alternative annuity option,
OPM each year. It will show any tax you had withheld. File tax will be withheld at a 20% rate on the taxable part of the
a copy of Form CSA 1099R with your tax return if any lump-sum payment received. (See Alternative Annuity Op-
federal income tax was withheld. tion in Part II for information about this option.) However,
Choosing no withholding on payments outside the no tax will be withheld from the lump sum if you roll the
United States. The choice for no withholding generally taxable part over to a traditional IRA or a qualified plan by
cannot be made for annuity payments to be delivered having OPM transfer the taxable part directly to a tradi-
outside the United States and its possessions. tional IRA or other plan.
To choose no withholding if you are a U.S. citizen or Withholding from Thrift Savings Plan payments. Gen-
resident, you must provide OPM with your home address erally, a distribution that you receive from the Thrift Sav-
in the United States or its possessions. Otherwise, OPM ings Plan (TSP) is subject to federal income tax
has to withhold tax. For example, OPM must withhold if withholding. The amount withheld is:
you provide a U.S. address for a nominee, trustee, or
agent (such as a bank) to whom the benefits are to be • 20% if the distribution is an eligible rollover distribu-
delivered, but you do not provide your own U.S. home tion, or
address. • 10% if it is a nonperiodic distribution other than an
You also may choose no withholding if you certify to eligible rollover distribution, or
OPM that you are not a U.S. citizen, a U.S. resident alien,
or someone who left the United States to avoid tax. But if • An amount determined by treating the payment as
you so certify, you may be subject to the 30% flat rate wages, if it is a periodic distribution.
withholding that applies to nonresident aliens. For details,
see Publication 519, U.S.Tax Guide for Aliens. However, you can usually choose not to have tax withheld
from TSP payments other than eligible rollover distribu-
Withholding certificate. If you give OPM a Form
tions. By January 31 after the end of the year in which you
W–4P–A, Election of Federal Income Tax Withholding,
receive a distribution, the TSP will issue Form 1099 –R
choosing withholding, your annuity will be treated like
showing the total distributions you received in the prior
wages for income tax withholding purposes. If you do not
year and the amount of tax withheld.
make a choice, OPM must withhold as if you were married
with three withholding allowances. For a detailed discussion of withholding on distributions
from the TSP, see Important Tax Information About Pay-
To change the amount of tax withholding or to
ments From Your TSP, available from your agency person-
stop withholding, call OPM’s Retirement Informa-
nel office or from the TSP.
tion Office at 1 – 888 – 767 – 6738 (customers
within the local Washington, D.C. calling area must call The above document is also available on the
202 – 606 – 0500), or call Annuitant Express at Internet at www.tsp.gov. Select “Forms & Pubs,”
1–800–409–6528. No special form is needed. You will then select “Other Documents.”
need your retirement claim number (CSA or CSF) and your
social security number when you call. If you have TTY/ Estimated tax. Generally, you should make estimated tax
TDD equipment, call 1–800–878–5707. payments for 2002 if you expect to owe at least $1,000 in
tax (after subtracting your withholding and credits) and you
You can also change the amount of withholding expect your withholding and your credits to be less than
or stop withholding through the Internet at the smaller of:
www.servicesonline.opm.gov. You will need
your retirement claim number (CSA or CSF) and your 1) 90% of the tax to be shown on your income tax
Personal Identification Number (PIN). To get a PIN, call the return for 2002, or
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to use either the General Rule or the Simplified not been fully recovered at your (or the survivor
Method. annuitant’s) death, a deduction is allowed for the unrecov-
• If your annuity starting date is after November 18, ered cost. The deduction is claimed on your (or your
1996, you must use the Simplified Method. survivor’s) final tax return as a miscellaneous itemized
deduction (not subject to the 2%-of-adjusted-gross income
Under both the General Rule and the Simplified Method, limit). If your annuity starting date is before July 2, 1986, no
each of your monthly annuity payments is made up of two tax benefit is allowed for any unrecovered cost at death.
parts: the tax-free part that is a return of your cost, and the
taxable part that is the amount of each payment that is Simplified Method
more than the part that represents your cost. The tax-free
part is a fixed dollar amount. It remains the same, even if If your annuity starting date is after November 18, 1996,
your annuity is increased. Generally, this rule applies as you must use the Simplified Method to figure the tax-free
long as you receive your annuity. However, see Exclusion part of your CSRS or FERS annuity. (OPM has figured the
limit, later. taxable amount of your annuity shown on your Form CSA
1099R using the Simplified Method.) You could have cho-
Choosing a survivor annuity after retirement. If you
sen to use either the Simplified Method or the General
retired without a survivor annuity and report your annuity
under the Simplified Method, do not change your tax-free Rule if your annuity starting date is after July 1, 1986, but
monthly amount even if you later choose a survivor annu- before November 19, 1996. The Simplified Method does
ity. not apply if your annuity starting date is before July 2,
If you retired without a survivor annuity and report your 1986.
annuity under the General Rule, you must figure a new Under the Simplified Method, you figure the tax-free part
exclusion percentage if you later choose a survivor annu- of each full monthly payment by dividing your cost by a
ity. To figure it, reduce your cost by the amount you number of months based on your age. This number will
previously recovered tax free. Figure the expected return differ depending on whether your annuity starting date is
as of the date the reduced annuity begins. For details on on or before November 18, 1996, or later. If your annuity
the General Rule, see Publication 939. starting date is after 1997 and your annuity includes a
survivor benefit for your spouse, this number is based on
Canceling a survivor annuity after retirement. If you
notify OPM that your marriage has ended, your annuity your combined ages.
might be increased to remove the reduction for a survivor
benefit. The increased annuity does not change the cost Table 1. Use Table 1, Simplified Method Worksheet (near
recovery you figured at the annuity starting date. The the end of this publication), to figure your taxable annuity.
tax-free part of each annuity payment remains the same. Be sure to keep the completed worksheet. It will help you
figure your taxable amounts for later years.
For more information about choosing or cancel-
ing a survivor annuity after retirement, contact Instead of Table 1, you can generally use the
OPM’s Retirement Information Office at TIP Simplified Method Worksheet in the instructions
1–888–767–6738 (customers within the local Washing- for Form 1040 or Form 1040A to figure your
ton, D.C. calling area must call 202–606–0500). taxable annuity. However, you must use Table 1 and
Table 2 in this publication if you chose the alternative
annuity option. See Alternative Annuity Option, later.
Exclusion limit. If your annuity starting date is after 1986,
the total amount of annuity income that you (or the survivor Line 2. See Your cost, earlier, for an explanation of your
annuitant) can exclude over the years as a return of your cost in the plan. If your annuity starting date is after No-
cost may not exceed your total cost. Annuity payments you
vember 18, 1996, and you chose the alternative annuity
or your survivors receive after the total cost in the plan has
option (explained later), you must reduce your cost by the
been recovered are fully taxable.
tax-free part of the lump-sum payment you received.
Example. Your annuity starting date is after 1986 and Line 3. Find the appropriate number from one of the
you exclude $100 a month under the Simplified Method. If tables at the bottom of the worksheet. If your annuity
your cost is $12,000, the exclusion ends after 10 years starting date is after 1997, use:
(120 months). Thereafter, your entire annuity is taxable.
• Table 1 for an annuity without a survivor benefit, or
Annuity starting date before 1987. If your annuity
starting date is before 1987, you continue to take your • Table 2 for an annuity with a survivor benefit.
monthly exclusion figured under the General Rule or Sim- If your annuity starting date is before 1998, use Table 1.
plified Method for as long as you receive your annuity. If
you chose a joint and survivor annuity, your survivor con- Line 6. If you retired before 2001, the amount previ-
tinues to take that same exclusion. The total exclusion may ously recovered tax free that you must enter on line 6 is the
be more than your cost. total amount from line 10 of last year’s worksheet. If your
annuity starting date is before November 19, 1996, and
Deduction of unrecovered cost. If your annuity starting you chose the alternative annuity option, it includes the
date is after July 1, 1986, and the cost of your annuity has tax-free part of the lump-sum payment you received.
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Example. Bill Kirkland retired from the federal govern- Alternative Annuity Option
ment on April 30, 2001, under an annuity that will provide a
survivor benefit for his wife, Kathy. His annuity starting If you are a nondisability retiree under either CSRS or
date is May 3, 2001. He must use the Simplified Method to FERS, you may be able to choose the alternative annuity
figure the tax-free part of his annuity benefits. option. This option is generally available only to retirees
Bill’s monthly annuity benefit is $1,000. He had contrib- with certain life-threatening illnesses or other critical medi-
uted $24,700 to his retirement plan and had received no cal conditions. If you choose this option, you will receive a
distributions before his annuity starting date. At his annuity lump-sum payment equal to your total regular contribu-
starting date, he was 65 and Kathy was 57. tions to the retirement plan plus any interest that applies.
Bill’s completed worksheet (Table 1) is shown on the Your monthly annuity is then reduced by about 5 to 15
next page. To complete line 3, he used Table 2 at the percent to adjust for this payment.
bottom of the worksheet and found the number in the
second column opposite the age range that includes 122 Lump-Sum Payment
(his and Kathy’s combined ages). Bill keeps a copy of the
completed worksheet for his records. It will help him (and The lump-sum payment you receive under the alternative
Kathy, if she survives him) figure the taxable amount of the annuity option generally has a tax-free part and a taxable
annuity in later years. part. The tax-free part represents part of your cost. The
Bill’s tax-free monthly amount is $80. (See line 4 of the taxable part represents part of the earnings on your annu-
worksheet.) If he lives to collect more than 310 monthly ity contract. If your lump-sum credit (discussed later) in-
payments, he will have to include in his gross income the cludes a deemed deposit or redeposit, the taxable amount
full amount of any annuity payments received after 310 may be more than the lump-sum payment. You must
payments have been made. include the taxable part of the lump-sum payment in your
If Bill does not live to collect 310 monthly payments and income for the year you receive the payment unless you
his wife begins to receive monthly payments, she will also roll it over into another qualified plan or a traditional IRA. If
exclude $80 from each monthly payment until 310 pay- you do not have OPM transfer the taxable amount to an
ments (Bill’s and hers) have been collected. If she dies IRA or other plan in a direct rollover, tax will be withheld at
before 310 payments have been made, a miscellaneous a 20% rate. See Rollover Rules, later, for information on
itemized deduction (not subject to the how to make a rollover.
2%-of-adjusted-gross-income limit) will be allowed for the OPM can make a direct rollover only up to the
unrecovered cost on her final income tax return.
!
CAUTION
amount of the lump-sum payment. Therefore, to
defer tax on the full taxable amount if it is more
General Rule than the payment, you must roll over the difference using
your own funds.
If your annuity starting date is after November 18, 1996,
The taxable part of the lump-sum payment does not
you cannot use the General Rule to figure the tax-free part
qualify as a lump-sum distribution eligible for capital gain
of your CSRS or FERS annuity. If your annuity starting
treatment or the 10-year tax option. It may also be subject
date is after July 1, 1986, but before November 19, 1996,
to an additional 10% tax on early distributions if you sepa-
you could have chosen to use either the General Rule or
rate from service before the calendar year in which you
the Simplified Method. If your annuity starting date is
reach age 55. For more information, see Lump-Sum Distri-
before July 2, 1986, you could have chosen to use the
butions and Tax on Early Distributions in Publication 575.
General Rule only if you could not use the Three-Year
Rule. Table 2. Use Table 2, Worksheet for Lump-Sum Payment
Under the General Rule, you figure the tax-free part of (near the end of this publication), to figure the taxable part
each full monthly payment by multiplying the initial gross of your lump-sum payment. Be sure to keep the completed
monthly rate of your annuity by an exclusion percentage. worksheet for your records.
Figuring this percentage is complex and requires the use To complete the worksheet, you will need to know the
of actuarial tables. For these tables and other information amount of your lump-sum credit and the present value of
about using the General Rule, see Publication 939. your annuity contract.
Lump-sum credit. Generally, this is the same amount
Three-Year Rule as the lump-sum payment you receive (the total of your
contributions to the retirement system and interest on
If your annuity starting date was before July 2, 1986, you those contributions). However, for purposes of the alterna-
probably had to report your annuity using the Three-Year tive annuity option, your lump-sum credit may also include
Rule. Under this rule, you excluded all the annuity pay- deemed deposits and redeposits that OPM advanced to
ments from income until you fully recovered your cost. your retirement account so that you are given credit for the
After your cost was recovered, all payments became fully service they represent. Deemed deposits (including inter-
taxable. You cannot use another rule to again exclude est) are for federal employment during which no retirement
amounts from income. contributions were taken out of your pay. Deemed rede-
The Three-Year Rule was repealed for retirees whose posits (including interest) are for any refunds of retirement
annuity starting date is after July 1, 1986. contributions that you received and did not repay. You are
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1. Enter the total annuity received this year. Also add this amount to the total for Form 1040,
line 16a, or Form 1040A, line 12a $ 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 12b.
If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount on
this line instead $ 7,360
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1. Enter your lump-sum credit (your cost in the plan at the annuity starting date) $ 31,000
5. Taxable amount (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 12b of Form 1040A. Also, enter this amount
on line 2 of Table 1 in this publication $ 24,800
ning of this discussion) is the same as if the whole payment federal government before retiring again, your Form CSA
were paid at once. If the payment has a tax-free part, you 1099R may show only the amount of your contributions to
must treat the taxable part as received first. your retirement plan during your reemployment. If the
amount on the form does not include all your contributions,
disregard it and use your total contributions to figure the
How to report. Add any actual or deemed payment of taxable part of your annuity payments.
your lump-sum credit (defined earlier) to the total for line
16a, Form 1040, or line 12a, Form 1040A. Add the taxable
Annuity starting date before November 19, 1996. If
part to the total for line 16b, Form 1040, or line 12b, Form
your annuity starting date is before November 19, 1996,
1040A, unless you roll over the taxable part to a traditional
and you chose the alternative annuity option, the taxable
IRA or a qualified retirement plan. and tax-free parts of your lump-sum payment and your
If you receive the lump-sum payment in two install- annuity payments are figured using different rules. Under
ments, include any interest paid with the second install- those rules, you do not reduce your cost in the plan (line 2
ment on line 8a of either Form 1040 or Form 1040A. of Table 1) by the tax-free part of the lump-sum payment.
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1. Enter the total annuity received this year. Also add this amount to the total for Form 1040,
line 16a, or Form 1040A, line 12a $ 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 12b.
If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount on
this line instead $ 11,311.10
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However, you must include that tax-free amount with other another qualified retirement plan. If you do not have OPM
amounts previously recovered tax free (line 6 of Table 1) transfer the interest to a traditional IRA or other qualified
when limiting your total exclusion to your total cost. retirement plan in a direct rollover, tax will be withheld at a
20% rate. See Rollover Rules, later. The interest does not
Federal Gift Tax qualify as a lump-sum distribution eligible for capital gain
treatment or the 10-year tax option. It may also be subject
If, through the exercise or nonexercise of an election or to an additional 10% tax on early distributions if you sepa-
option, you provide an annuity for your beneficiary at or rate from service before the calendar year in which you
after your death, you have made a gift. The gift may be reach age 55. For more information, see Lump-Sum Distri-
taxable for gift tax purposes. The value of the gift is equal butions and Tax on Early Distributions in Publication 575.
to the value of the annuity.
Community property laws. State community property
Joint and survivor annuity. If the gift is an interest in a laws apply to your annuity. These laws will affect your
joint and survivor annuity where only you and your spouse income tax only if you file a return separately from your
can receive payments before the death of the last spouse spouse.
to die, the gift will generally qualify for the unlimited marital Generally, the determination of whether your annuity is
deduction. This will eliminate any gift tax liability with re- separate income (taxable to you) or community income
gard to that gift. (taxable to both you and your spouse) is based on your
If you provide survivor annuity benefits for someone marital status and domicile when you were working. Re-
other than your current spouse, such as your former gardless of whether you are now living in a community
spouse, the unlimited marital deduction will not apply. This property state or a noncommunity property state, your
may result in a taxable gift. current annuity may be community income if it is based on
services you performed while married and domiciled in a
More information. For information about the gift tax, community property state.
see Publication 950, Introduction to Estate and Gift Taxes. At any time, you have only one domicile even though
you may have more than one home. Your domicile is your
Retirement During the Past Year fixed and permanent legal home to which, when absent,
you intend to return. The question of your domicile is
If you have recently retired, the following discussions cov- mainly a matter of your intentions as indicated by your
ering annual leave, voluntary contributions, and commu- actions.
nity property may apply to you. If your annuity is a mixture of community income and
Annual leave. Treat a payment for accrued annual leave separate income, you must divide it between the two kinds
received on retirement as a salary payment. It is taxable as of income. The division is based on your periods of service
wages in the tax year you receive it. and domicile in community and noncommunity property
states while you were married.
Voluntary contributions. Voluntary contributions to the For more information, see Publication 555, Community
retirement fund are those made in addition to the regular Property.
contributions that were deducted from your salary. They
also include the regular contributions withheld from your Reemployment After Retirement
salary after you have the years of service necessary for the
maximum annuity allowed by law. Voluntary contributions If you retired from federal service and are later reemployed
are not the same as employee contributions to the Thrift by the federal government, you can continue to receive
Savings Plan. See Thrift Savings Plan, later. your annuity during reemployment. The employing agency
Additional annuity benefit. If you choose an additional will usually pay you the difference between your salary for
annuity benefit from your voluntary contributions, it is your period of reemployment and your annuity. This
treated separately from the annuity benefit that comes amount is taxable as wages. Your annuity will continue to
from the regular contributions deducted from your salary. be taxed just as it was before. If you are still recovering
This separate treatment applies for figuring the amounts to your cost, you continue to do so. If you have recovered
be excluded from, and included in, gross income. It does your cost, the annuity you receive while you are reem-
not matter that you receive only one monthly check cover- ployed is generally fully taxable.
ing both benefits. Each year you will receive a Form CSA
1099R that will show how much of your total annuity Nonresident Aliens
received in the past year was from each type of benefit.
Figure the taxable and tax-free parts of your additional The following special rules apply to nonresident alien fed-
monthly benefits from voluntary contributions using the eral employees performing services outside the United
rules that apply to regular CSRS and FERS annuities, as States and to nonresident alien retirees and beneficiaries.
explained earlier in Part II.
Special rule for figuring your total contributions. Your
Refund of voluntary contributions. If you choose a contributions to the retirement plan (your cost) also include
refund of your voluntary contributions plus accrued inter- the government’s contributions to the plan to a certain
est, the interest is taxable to you in the tax year it is extent. You include government contributions that would
distributed unless you roll it over to a traditional IRA or not have been taxable to you at the time they were contrib-
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uted if they had been paid directly to you. For example, Worksheet for Nonresident Alien
government contributions would not have been taxable to 1. Enter the otherwise taxable amount of
you if, at the time made, your services were performed the CSRS or FERS annuity (from line 9
outside the United States. Thus, your cost is increased by of Table 1) or TSP distributions $ 720
government contributions that you would have excluded as 2. Enter the total U.S. Government basic
income from foreign services if you had received them pay other than tax-exempt pay for
directly as wages. This reduces the benefits that you, or services performed outside the United
your beneficiary, must include in income. States 0
This method of figuring your total contributions does not 3. Enter the total U.S. Government basic
apply to any contributions the government made on your pay for all services 100,000
behalf after you became a citizen or resident of the United 4. Divide line 2 by line 3 0
States. 5. Limited taxable amount. Multiply line 1
by the number on line 4. Enter this
Limit on taxable amount. There is a limit on the taxable amount on Form 1040NR, line 17b 0
amount of payments received from the CSRS, the FERS,
or the TSP by a nonresident alien retiree or nonresident Example 2. You are a nonresident alien who performed
alien beneficiary. This limited taxable amount is in the services for the U.S. Government as a nonresident alien
same proportion to the otherwise taxable amount that the both within the United States and abroad. You retired and
retiree’s total U.S. Government basic pay, other than began to receive a monthly annuity of $240.
tax-exempt pay for services performed outside the United Your total basic pay for your services for the U.S. Gov-
States, is to the retiree’s total U.S. Government basic pay ernment was $120,000 — $40,000 was for work done in the
for all services. United States and $80,000 was for your work done in a
Basic pay includes regular pay plus any standby differ- foreign country.
ential. It does not include bonuses, overtime pay, certain The taxable amount of your annuity figured using Table
1 in this publication is $1,980. Because you are a nonresi-
retroactive pay, uniform or other allowances, or lump-sum
dent alien, you figure the limited taxable amount of your
leave payments.
annuity as follows.
To figure the limited taxable amount of your CSRS or Worksheet for Nonresident Alien
FERS annuity or your TSP distributions, use the following
worksheet. (For an annuity, first complete Table 1 in this 1. Enter the otherwise taxable amount of
publication.) the CSRS or FERS annuity (from line 9
of Table 1) or TSP distributions $ 1,980
Worksheet for Nonresident Alien
2. Enter the total U.S. Government basic
1. Enter the otherwise taxable amount of pay other than tax-exempt pay for
the CSRS or FERS annuity (from line 9 services performed outside the United
of Table 1) or TSP distributions $ States 40,000
2. Enter the total U.S. Government basic 3. Enter the total U.S. Government basic
pay other than tax-exempt pay for pay for all services 120,000
services performed outside the United .333
States 4. Divide line 2 by line 3
3. Enter the total U.S. Government basic 5. Limited taxable amount. Multiply line 1
pay for all services by the number on line 4. Enter this
amount on Form 1040NR, line 17b $ 659
4. Divide line 2 by line 3
5. Limited taxable amount. Multiply line 1
by the number on line 4. Enter this Thrift Savings Plan
amount on Form 1040NR, line 17b
All of the money in your Thrift Savings Plan (TSP) account
is taxed as ordinary income when you receive it. This is
Example 1. You are a nonresident alien who performed because neither the contributions to your TSP account nor
all services for the U.S. Government abroad as a nonresi- its earnings have been previously included in your taxable
dent alien. You retired and began to receive a monthly income. The way that you withdraw your account balance
annuity of $200. Your total basic pay for all services for the determines when you must pay the tax.
U.S. Government was $100,000.
Direct rollover by the TSP. If you ask the TSP to transfer
The taxable amount of your annuity using Table 1 in this any part of the money in your account to a traditional IRA or
publication is $720. Because you are a nonresident alien, other qualified retirement plan, the tax on that part is
you figure the limited taxable amount of your annuity as deferred until you receive payments from the traditional
follows. IRA or other plan. See Rollover Rules, later.
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TSP annuity. If you ask the TSP to buy an annuity with the The above documents are also available on the
money in your account, the annuity payments are taxed Internet at www.tsp.gov. Select “Forms & Publi-
when you receive them. The payments are not subject to cations.”
the additional 10% tax on early distributions, even if you
are under age 55 when they begin.
Rollover Rules
Cash withdrawals. If you withdraw any of the money in
your TSP account, it is taxed as ordinary income when you A rollover is a tax-free withdrawal of cash or other assets
receive it unless you roll it over into a traditional IRA or from one qualified retirement plan or traditional IRA and its
other qualified plan. (See Rollover Rules, later.) If you reinvestment in another qualified retirement plan or tradi-
receive your entire TSP account balance in a single tax tional IRA. Do not include the amount rolled over in your
income, and you cannot take a deduction for it. The
year, you may be able to use the 10-year tax option to
amount rolled over is taxed later as the new program pays
figure your tax. See Lump-Sum Distributions in Publication
that amount to you. If you roll over amounts into a tradi-
575 for details.
tional IRA, later distributions of these amounts from the
If you receive a single payment or you choose to receive traditional IRA do not qualify for the capital gain or the
your account balance in monthly payments over a period of 10-year tax option. However, capital gain treatment or the
less than 10 years, the TSP generally must withhold 20% 10-year tax option will be restored if the traditional IRA
for federal income tax. If you choose to receive your ac- contains only amounts rolled over from a qualified plan and
count balance in monthly payments over a period of 10 or these amounts are rolled over from the traditional IRA into
more years or a period based on your life expectancy, the a qualified retirement plan.
payments are subject to withholding under the same rules
as your CSRS or FERS annuity. See Tax Withholding and Qualified retirement plan. For this purpose, a qualified
Estimated Tax in Part I. retirement plan generally is:
Tax on early distributions. Any money paid to you • A qualified employee plan, or
from your TSP account before you reach age 591/2 may be
subject to an additional 10% tax on early distributions. • A qualified employee annuity.
However, this additional tax does not apply in any of the The CSRS, FERS, and TSP are considered qualified re-
following situations. tirement plans.
1) You separate from government service during or af-
ter the calendar year in which you reach age 55. For distributions made after 2001, the following
2) You choose to receive your account balance in TIP plans will also be qualified retirement plans.
monthly payments based on your life expectancy.
3) You retire on disability. • A tax-sheltered annuity plan (403(b) plan).
For more information, see Tax on Early Distributions in • An eligible state or local government section 457
Publication 575. deferred compensation plan.
Outstanding loan. If the TSP declares a distribution from Distributions eligible for rollover treatment. If you re-
your account because money you borrowed has not been ceive a refund of your CSRS or FERS contributions when
repaid when you separate from government service, your you leave government service, you can roll over any inter-
account is reduced and the amount of the distribution (your est you receive on the contributions. You cannot roll over
unpaid loan balance and any unpaid interest) is taxed in any part of your CSRS or FERS annuity payments.
the year declared. The distribution also may be subject to You can roll over a distribution of any part of your TSP
the additional 10% tax on early distributions. However, the account balance except:
tax will be deferred if you make a rollover contribution to a
traditional IRA or other qualified plan equal to the declared 1) A distribution of your account balance that you
distribution amount. See Rollover Rules, next. If you with- choose to receive in monthly payments over:
draw any money from your TSP account the same year,
the TSP must withhold income tax of 20% of the total of the a) Your life expectancy, or
declared distribution and the amount withdrawn. b) A period of 10 years or more,
More information. For more information about the TSP, 2) A required minimum distribution generally beginning
see Summary of the Thrift Savings Plan for Federal at age 701/2,
Employees, distributed to all federal employees. Also see
Important Tax Information About Payments From Your 3) A declared distribution because of an unrepaid loan,
TSP Account and Tax Treatment of Thrift Savings Plan if you have not separated from government service
Payments to Nonresident Aliens and Their Beneficiaries, (see Outstanding loan under Thrift Savings Plan,
earlier), or
which are available from your agency personnel office or
from the TSP. 4) A hardship distribution.
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In addition, a distribution to your beneficiary generally is The 60-day period may be extended for distribu-
not treated as an eligible rollover distribution. However, TIP tions made after 2001 in certain cases of casu-
see Qualified domestic relations order and Rollover by alty, disaster, or other events beyond your
surviving spouse, later. reasonable control.
Direct rollover option. You can choose to have the OPM Frozen deposits. If an amount distributed to you be-
or TSP transfer any part of an eligible rollover distribution comes a frozen deposit in a financial institution during the
directly to another qualified retirement plan that accepts 60-day period after you receive it, the rollover period is
rollover distributions or to a traditional IRA. The distribution extended. An amount is a frozen deposit if you cannot
cannot be rolled over into a Roth IRA. withdraw it because of either:
No tax withheld. If you choose the direct rollover op- • The bankruptcy or insolvency of the financial institu-
tion, no tax will be withheld from any part of the distribution tion, or
that is directly paid to the trustee of the other plan.
• Any requirement imposed by the state in which the
institution is located because of the bankruptcy or
Payment to you option. If an eligible rollover distribution insolvency (or threat of it) of one or more financial
is paid to you, the OPM or TSP must withhold 20% for institutions in the state.
income tax even if you plan to roll over the distribution to
another qualified retirement plan or traditional IRA. How- The 60-day rollover period is extended by the period for
ever, the full amount is treated as distributed to you even which the amount is a frozen deposit and does not end
though you actually receive only 80%. You generally must earlier than 10 days after the amount is no longer a frozen
include in income any part (including the part withheld) that deposit.
you do not roll over within 60 days to another qualified
retirement plan or to a traditional IRA.
Qualified domestic relations order. You may be able to
If you leave government service before the calendar roll over tax free all or part of a distribution you receive from
year in which you reach age 55 and are under age 591/2 the CSRS, the FERS, or the TSP under a court order in a
when a distribution is paid to you, you may have to pay an divorce or similar proceeding. You must receive the distri-
additional 10% tax on any part, including any tax withheld, bution as the government employee’s spouse or former
that you do not roll over. See Tax on Early Distributions in spouse (not as a nonspousal beneficiary). The rollover
Publication 575. rules apply to you as if you were the employee. You can roll
Exception to withholding. Withholding from an eligi- over the distribution if it is an eligible rollover distribution
ble rollover distribution paid to you is not required if the (described earlier) and it is made under a qualified domes-
distributions for your tax year total less than $200. tic relations order (QDRO) or, for the TSP, a qualifying
order.
Partial rollovers. If you receive a lump-sum distribu-
tion, it may qualify for capital gain treatment or the 10-year A QDRO is a judgment, decree, or order relating to
tax option. See Lump-Sum Distributions in Publication payment of child support, alimony, or marital property
575. However, if you roll over any part of the distribution, rights. The payments must be made to a spouse, former
the part you keep does not qualify for this special tax spouse, child, or other dependent of a participant in the
treatment. plan. For the TSP, a QDRO can be a qualifying order, but a
domestic relations order can be a qualifying order even if it
Rolling over more than amount received. If you want is not a QDRO. For example, a qualifying order can include
to roll over more of an eligible rollover distribution than the an order that requires a TSP payment of attorney’s fees to
amount you received after income tax was withheld, you the attorney for the spouse, former spouse, or child of the
will have to add funds from some other source (such as participant.
your savings or borrowed amounts).
The order must contain certain information, including
Example. You left government service at age 53. On the amount or percentage of the participant’s benefits to be
February 1, 2002, you receive an eligible rollover distribu- paid to each payee. It cannot require the plan to pay
tion of $10,000 from your TSP account. The TSP withholds benefits in a form not offered by the plan, nor can it require
$2,000, so you actually receive $8,000. If you want to roll the plan to pay increased benefits.
over the entire $10,000 to postpone including that amount A distribution that is paid to a child, dependent, or, if
in your income, you will have to get $2,000 from some applicable, an attorney for fees, under a QDRO or a quali-
other source and add it to the $8,000 you actually received. fying order is taxed to the plan participant.
If you roll over only $8,000, you must include in your
income the $2,000 not rolled over. Also, you may be Rollover by surviving spouse. You may be able to roll
subject to the 10% additional tax on the $2,000. over tax free all or part of the CSRS, FERS, or TSP
distribution you receive as the surviving spouse of a de-
Time for making rollover. You generally must complete ceased employee. The rollover rules apply to you as if you
the rollover of an eligible rollover distribution by the 60th were the employee, except that you generally can roll over
day following the day on which you receive the distribution. the distribution only into a traditional IRA.
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You can roll over a distribution made after 2001 Comparison Chart
TIP into a qualified retirement plan or a traditional Direct Rollover Payment to you
IRA.
No withholding. Payer generally must withhold
income tax of 20% on the taxable
A distribution paid to a beneficiary other than the part even if you roll it over.
employee’s surviving spouse is not an eligible rollover
distribution. No 10% additional tax. If you are under age 591⁄2, a 10%
additional tax may apply to the
taxable part, including the tax
How to report. On your Form 1040, report the total distri- withheld, that you do not roll over.
butions from the CSRS, FERS, or TSP on line 16a. Report
the taxable amount of the distributions minus the amount Not income until later distributed Taxable part, including the tax
to you from the other plan or the withheld, is income to the extent not
rolled over, regardless of how the rollover was made, on traditional IRA. rolled over.
line 16b. If you file Form 1040A, report the total distribu-
If rolled over to another qualified May be eligible for capital gain
tions on line 12a and the taxable amount minus the amount plan, may be eligible for capital treatment or the 10-year tax option if
rolled over on line 12b. gain treatment or the 10-year tax no part is rolled over.
option when later distributed to
Written explanation to recipients. The TSP or OPM you from that plan.
must provide a written explanation to you within a reasona-
ble period of time before making an eligible rollover distri-
bution to you. It must tell you about all of the following. How To Report Benefits
1) Your right to have the distribution paid tax free di- If you received annuity benefits that are not fully taxable,
rectly to another qualified retirement plan or to a report the total received for the year on Form 1040, line
traditional IRA. 16a, or on Form 1040A, line 12a. Also include on that line
the total of any other pension plan payments (even if fully
2) The requirement to withhold tax from the distribution taxable, such as those from the TSP) that you received
if it is not directly rolled over. during the year in addition to the annuity. Report the
3) The nontaxability of any part of the distribution that taxable amount of these total benefits on line 16b (Form
you roll over within 60 days after you receive the 1040) or line 12b (Form 1040A). If you use Form 4972, Tax
distribution. on Lump-Sum Distributions, however, to report the tax on
any amount, do not include that amount on lines 16a and
4) Other qualified retirement plan rules that apply, in- 16b or lines 12a and 12b; follow the Form 4972 instruc-
cluding those for lump-sum distributions, alternate tions.
payees, and cash or deferred arrangements.
If you received only fully taxable payments from your
retirement, the TSP, or other pension plan, report on Form
For most distributions made after 2001, the ex-
1040, line 16b, or Form 1040A, line 12b, the total received
TIP planation must also tell you how distributions
for the year (except for any amount reported on Form
from the plan receiving the rollover may be sub-
4972); no entry is required on line 16a (Form 1040) or line
ject to restrictions and tax consequences that differ from
12a (Form 1040A).
those that apply to distributions from the plan making the
rollover.
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are treated as a retirement annuity. At that time or at any ments are shown as wages on your return. See Tax With-
time thereafter, you can begin to recover the cost of your holding and Estimated Tax in Part I, earlier.
annuity under the rules discussed in Part II.
If you find that you could have started your recovery in Other Benefits
an earlier year for which you have already filed a return,
you can start your recovery of contributions in that earlier The tax treatment of certain other benefits is explained in
year by filing an amended return for that year and each this section.
succeeding year. Generally, an amended return for any
year must be filed within 3 years after the due date for filing Federal Employees’ Compensation Act (FECA). FECA
your original return for that year. payments you receive for personal injuries or sickness
resulting from the performance of your duties are like
Minimum retirement age. This is the age at which you workers’ compensation. They are tax exempt and are not
could first receive an annuity were you not disabled. This treated as disability income or annuities. However, pay-
generally is based on your age and length of service. ments you receive while your claim is being processed,
Retirement under the Civil Service Retirement Sys- including pay while on sick leave and continuation of pay
tem (CSRS). In most cases, under the CSRS, the mini- for up to 45 days, are taxable.
mum combinations of age and service for retirement are: Sick pay or disability payments repaid. If you repay
• Age 55 with 30 years of service, sick leave or disability annuity payments you received in an
earlier year to be eligible for nontaxable FECA benefits,
• Age 60 with 20 years of service, you can deduct the amount you repay. You can claim the
• Age 62 with 5 years of service, or deduction whether you repay the amount yourself or have
the FECA payment sent directly to your employing agency
• For law enforcement, firefighter, or air traffic control- or the OPM.
ler service, age 50 with 20 years of covered service. Claim the deduction on Schedule A (Form 1040) as a
miscellaneous itemized deduction, subject to the
Retirement under the Federal Employees Retire- 2%-of-adjusted-gross-income limit. It is considered a busi-
ment System (FERS). In most cases, the minimum age ness loss and may create a net operating loss if your
for retirement under the FERS is between ages 55 and 57 deductions for the year are more than your income for the
with at least 10 years of service. With at least 5 years of year. Get Publication 536, Net Operating Losses (NOLs)
service, your minimum retirement age cannot be older than for Individuals, Estates, and Trusts, for more information.
age 62. Your minimum retirement age (MRA) with at least The repayment is not eligible for the special tax credit that
10 years of service is shown in the following table. applies to repayments over $3,000 of amounts received
If you were born in Your MRA is under a claim of right.
55 years If you repay sick leave or disability annuity payments in
1947 or earlier the same year you receive them, the repayment reduces
1948 55 years, 2 months
the taxable sick pay or disability annuity you include in
1949 55 years, 4 months income. Do not deduct it separately.
1950 55 years, 6 months
1951 55 years, 8 months Terrorist attack. Disability benefits you receive for inju-
55 years, 10 months ries resulting from a violent attack are tax exempt and are
1952
56 years not treated as disability income or annuities if:
1953 to 1964
1965 56 years, 2 months 1) The attack took place while you were a federal em-
1966 56 years, 4 months ployee performing official duties outside the United
1967 56 years, 6 months States, and
1968 56 years, 8 months 2) The Secretary of State determines it to have been a
1969 56 years, 10 months terrorist attack.
1970 or later 57 years
As this publication was being prepared for print,
Your minimum retirement age with law enforcement,
firefighter, or air traffic controller service is age 50 with 20 !
CAUTION
Congress was considering legislation that would
exempt from tax disability benefits received by
years of covered service or any age with 25 years of any individual for injuries resulting from a terrorist or mili-
covered service. tary action inside or outside the United States. For more
information, see Publication 3920.
How to report. You must report all your disability annuity
payments received before minimum retirement age on line
7 (Form 1040 or Form 1040A). Disability resulting from military service injuries. If
you received tax-exempt benefits from the Department of
Withholding. For income tax withholding purposes, a dis- Veterans Affairs for personal injuries resulting from active
ability annuity is treated the same as a nondisability annu- service in the armed forces and later receive a CSRS or
ity. This treatment also applies to disability payments FERS disability annuity for disability arising from the same
received before minimum retirement age when these pay- injuries, you cannot treat the disability annuity payments as
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tax-exempt income. They are subject to the rules de- • A law enforcement officer employed by the U.S.
scribed earlier under Disability Annuity. Government who is otherwise eligible for immediate
retirement generally must retire by the last day of the
Payment for unused annual leave. When you retire, any month in which he or she reaches age 57 or, if later,
payment for your unused annual leave is taxed as wages completes 20 years of law enforcement service.
in the tax year you receive the payment.
Physician’s statement. If you are under 65, you must
Credit for the Elderly or the Disabled have your physician complete a statement certifying that
you are permanently and totally disabled on the date you
You can take the credit for the elderly or the disabled if:
retired. You must keep this statement for your tax records.
• You are a qualified individual, and You can use the Physician’s Statement in the instructions
for either Schedule R (Form 1040) or Schedule 3 (Form
• Your income is not more than certain limits.
1040A).
You are a qualified individual for this credit if you are a Figuring the credit. If you figure the credit yourself, fill out
U.S. citizen or resident and, at the end of the tax year, you the front of either Schedule R (if you are filing Form 1040)
are: or Schedule 3 (if you are filing Form 1040A). Next fill out
Part III of either Schedule R or Schedule 3.
1) Age 65 or older, or If you want the Internal Revenue Service to figure your
2) Under age 65, retired on permanent and total disabil- tax and credits, including the credit for the elderly or the
ity, and disabled, see Publication 967, The IRS Will Figure Your
Tax, and the instructions for Schedule R (Form 1040) or
a) Received taxable disability income, and Schedule 3 (Form 1040A).
b) Did not reach mandatory retirement age ( de- More information. For detailed information about this
fined later) before the tax year. credit, get Publication 524.
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all or part of the repayment if it will cause a hardship. If that the same as those described near the beginning of Part II
happens, that amount is tax free. under Recovering your cost tax free.
The following discussions cover only the Simplified
For more information on this program, you may
Method. You can use this method if your annuity starting
contact the Bureau of Justice Assistance by call-
date is after July 1, 1986. You must use this method if your
ing 1– 888–744–6513, or 202–307–0635 if you
annuity starting date is after November 18, 1996. Under
are in the metropolitan Washington, D.C., calling area.
the Simplified Method, each of your monthly annuity pay-
ments is made up of two parts: the tax-free part that is a
Additional information about this death benefit is
return of the employee’s cost and the taxable part that is
also available on the Internet at
the amount of each payment that is more than the part that
www.ojp.usdoj.gov/BJA. Select “Funding” then
represents the employee’s cost. The tax-free part remains
select “Benefits.”
the same, even if your annuity is increased. However, see
Exclusion limit, later.
FERS Death Benefit Surviving spouse with no children receiving annuities.
You may be entitled to a special FERS death benefit if you Under the Simplified Method, you figure the tax-free part of
were the spouse of an active FERS employee who died each full monthly annuity payment by dividing the
after at least 18 months of federal service. At your option, employee’s cost by a number of months based on your
you can take the benefit in the form of a single payment or age. This number will differ depending on whether your
in the form of a special annuity payable over a 3-year annuity starting date is on or before November 18, 1996, or
period. later. To use the Simplified Method, complete the work-
The tax treatment of the special death benefit depends sheet in Table 1, near the end of this publication. Specific
on the option you choose and whether a FERS survivor instructions for Table 1 are given in Part II under Simplified
annuity is also paid. Method.
If you choose the single payment option, use the
Example. Diane Greene, age 48, began receiving a
following rules.
$1,500 monthly CSRS annuity in March 2001 upon the
• If a FERS survivor annuity is not paid, at least part of death of her husband. Her husband was a federal em-
the special death benefit is tax free. The tax-free part ployee when he died. She received 10 payments in 2001.
is an amount equal to the employee’s FERS contri- Her husband had contributed $36,000 to the retirement
butions. plan.
Diane must use the Simplified Method. Her completed
• If a FERS survivor annuity is paid, all of the special worksheet (Table 1) is shown on the next page. To com-
death benefit is taxable. You cannot allocate any of
plete line 3, she used Table 1 at the bottom of the work-
the employee’s FERS contributions to the special
sheet and found the number in the last column opposite
death benefit.
the age range that includes her age. Diane keeps a copy of
the completed worksheet for her records. It will help her
If you choose the 3-year annuity option, at least part of
figure her taxable annuity in later years.
each monthly payment is tax free. Use the following rules.
Diane’s tax-free monthly amount is $100 ( line 4 of her
• If a FERS survivor annuity is not paid, the tax-free worksheet). If she lives to collect more than 360 payments,
part of each monthly payment is an amount equal to the payments after the 360th will be fully taxable. If she
the employee’s FERS contributions divided by 36. dies before 360 payments have been made, a miscellane-
ous itemized deduction (not subject to the
• If a FERS survivor annuity is paid, allocate the 2%-of-adjusted-gross-income limit) will be allowed for the
employee’s FERS contributions between the 3-year unrecovered cost on her final income tax return.
annuity and the survivor annuity. Make the allocation
in the same proportion that the expected return from Surviving spouse with child. If the survivor benefits in-
each annuity bears to the total expected return from clude both a life annuity for the surviving spouse and one
both annuities. Divide the amount allocated to the or more temporary annuities for the employee’s children,
3-year annuity by 36. The result is the tax-free part an additional step is needed under the Simplified Method
of each monthly payment of the 3-year annuity. to allocate the monthly exclusion among the beneficiaries
correctly.
Figure the total monthly exclusion for all beneficiaries by
CSRS or FERS Survivor Annuity completing lines 2 through 4 of the worksheet in Table 1 as
if only the surviving spouse received an annuity. Then, to
If you receive a CSRS or FERS survivor annuity, you can figure the monthly exclusion for each beneficiary, multiply
recover the employee’s cost tax free. The employee’s cost line 4 of the worksheet by a fraction. For any beneficiary,
is the total of the retirement plan contributions that were the numerator of the fraction is that beneficiary’s monthly
taken out of his or her pay. annuity and the denominator of the fraction is the total of
How you figure the tax-free recovery of the cost de- the monthly annuity payments to all the beneficiaries.
pends on your annuity starting date. This is the day after The ending of a child’s temporary annuity does not
the date of the employee’s death. The methods to use are affect the total monthly exclusion figured under the Simpli-
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1. Enter the total annuity received this year. Also add this amount to the total for Form 1040,
line 16a, or Form 1040A, line 12a $ 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 12b.
If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount on
this line instead $ 14,000
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fied Method. The total exclusion merely needs to be reallo- This monthly exclusion must then be allocated among the
cated at that time among the remaining beneficiaries. If children in proportion to their monthly annuity payments,
only the surviving spouse is left drawing an annuity, the like the exclusion shown in the previous example.
surviving spouse is entitled to the entire monthly exclusion
Disabled child. If a child otherwise entitled to a tempo-
as figured in the worksheet.
rary annuity was permanently disabled at the annuity start-
ing date (and there is no surviving spouse annuity), that
Example. The facts are the same as in the example for
child is treated for tax purposes as receiving a lifetime
Diane Greene in the preceding discussion except that the
annuity, like a surviving spouse. The child must complete
Greenes had a son, Robert, who was age 15 at the time of
line 3 of the Simplified Method Worksheet using a number
his father’s death. Robert is entitled to a $500 per month
in Table 1 at the bottom of the worksheet corresponding to
temporary annuity until he reaches age 18 (age 22, if he
the child’s age at the annuity starting date. If more than one
remains a full-time student and does not marry).
child is entitled to a temporary annuity, an allocation like
In completing the Table 1 worksheet (not shown), Diane
the one shown under Surviving spouse with child, earlier,
fills out the entries through line 4 exactly as shown in the
must be made to determine each child’s share of the
filled-in Table 1 worksheet for the earlier example. That is,
exclusion.
she includes on line 1 only the amount of the annuity she
herself received and she uses on line 3 the 360 factor for Exclusion limit. If your annuity starting date is after 1986,
her age. After arriving at the $100 monthly exclusion on the most that can be recovered tax free is the cost of the
line 4, however, Diane allocates it between her own annu- annuity. Once the total of your exclusions equals the cost,
ity and that of her son. your entire annuity is taxable. If your annuity starting date
To find how much of the monthly exclusion to allocate to is before 1987, the tax-free part of each whole monthly
her own annuity, Diane multiplies the $100 monthly exclu- payment remains the same each year you receive pay-
sion by the fraction $1,500 (her monthly annuity) over ments— even if you outlive the number of months used on
$2,000 (the total of her $1,500 and Robert’s $500 annui- line 3 of the Simplified Method Worksheet. The total exclu-
ties). She enters the result, $75, just below the entry space sion may be more than the cost of the annuity.
for line 4. She completes the worksheet by entering $750
on lines 5 and 8 and $14,250 on line 9. Deduction of unrecovered cost. If the annuity starting
A second worksheet (not shown) is completed for date is after July 1, 1986, and the annuitant’s death occurs
Robert’s annuity. On line 1, he enters $5,000 as the total before all the cost is recovered tax free, the unrecovered
annuity received. Lines 2, 3, and 4 are the same as those cost can be claimed as a miscellaneous itemized deduc-
on his mother’s worksheet. In allocating the $100 monthly tion (not subject to the 2%-of-adjusted-gross-income limit)
exclusion on line 4 to his annuity, Robert multiplies it by the for the annuitant’s last tax year.
fraction $500 over $2,000. His resulting monthly exclusion
is $25. His exclusion for the year (line 8) is $250 and his
taxable annuity for the year (line 9) is $4,750. Survivors of Slain Public Safety Officers
Diane and Robert only need to complete lines 10 and 11
Generally, if you receive a survivor annuity as the spouse,
on a single worksheet to keep track of their unrecovered
former spouse, or child of a public safety officer killed in the
cost for next year. These lines are exactly as shown in the
line of duty after 1996, you can exclude it from your in-
filled-in Table 1 worksheet for the earlier example.
come. The annuity is excludable to the extent that it is due
When Robert’s temporary annuity ends, the computa-
to the officer’s service as a public safety officer. Public
tion of the total monthly exclusion will not change. The only
safety officers include police and law enforcement officers,
difference will be that Diane will then claim the full exclu-
fire fighters, ambulance crews, and rescue squads.
sion against her annuity alone.
Survivor annuity payments received after 2001 by
Surviving child only. A method similar to the Simplified
TIP the spouse, former spouse, or child of a public
Method also can be used to figure the taxable and nontax-
safety officer killed in the line of duty before 1997
able parts of a temporary annuity for a surviving child when
can also be excluded from income.
there is no surviving spouse annuity. To use this method,
divide the deceased employee’s cost by the number of The exclusion does not apply if your actions were a
months from the child’s annuity starting date until the date substantial contributing factor to the death of the officer. It
the child will reach age 22. The result is the monthly also does not apply if:
exclusion. (But the monthly exclusion cannot be more than
the monthly annuity payment. You can carry over unused
• The death was caused by the intentional misconduct
of the officer or by the officer’s intention to cause his
exclusion amounts to apply against future annuity pay-
or her own death,
ments.)
More than one child. If there is more than one child
• The officer was voluntarily intoxicated at the time of
death, or
entitled to a temporary annuity (and no surviving spouse
annuity), divide the cost by the number of months of pay- • The officer was performing his or her duties in a
ments until the date the youngest child will reach age 22. grossly negligent manner at the time of death.
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The special death benefit paid to the spouse of a received within the same tax year. For more information,
!
CAUTION
FERS employee (see FERS Death Benefit, ear-
lier) is not eligible for this exclusion.
see Lump-Sum Distributions in Publication 575.
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rollover treatment. The TSP will withhold 10% of the pay- Decedent’s retirement benefits. Retirement benefits ac-
ment for federal income tax, unless you give the TSP a crued and payable to a CSRS or FERS retiree before
Form W –4P to choose not to have tax withheld. death, but paid to you as a survivor, are taxable in the
If the entire TSP account balance is paid to the benefi- same manner and to the same extent these benefits would
ciaries in the same calendar year, it may qualify as a have been taxable had the retiree lived to receive them.
lump-sum distribution eligible for the 10-year tax option.
See Lump-Sum Distributions in Publication 575 for details. CSRS or FERS Survivor Annuity
Also see Important Tax Information About Thrift Savings
Plan Death Benefit Payments, which is available from the CSRS or FERS annuity payments you receive as the
TSP. surviving spouse of a federal retiree are fully or partly
taxable under either the General Rule or the Simplified
The above TSP document is also available on the
Method.
Internet at www.tsp.gov. Select “Forms & Publi-
cations” and then select “Other Documents.” Cost recovered. If the retiree reported the annuity under
the Three-Year Rule and recovered all of the cost tax free
before dying, your survivor annuity payments are fully
Federal Estate Tax taxable. This is also true if the retiree had an annuity
starting date after 1986, reported the annuity under the
Form 706, United States Estate (and Generation-Skipping General Rule or the Simplified Method, and had fully re-
Transfer) Tax Return, must be filed for the estate of a covered the cost tax free.
citizen or resident of the United States who died in 2001 if
the gross estate is more than $675,000. Included in this General Rule. If the retiree was reporting the annuity
$675,000 are any taxable gifts made by the decedent after under the General Rule, use the same exclusion percent-
1976 and the specific exemption allowed for gifts by the age that the retiree used. Apply the exclusion percentage
decedent after September 8, 1976, and before 1977. to the amount specified as your survivor annuity at the
The gross estate generally includes the value of all retiree’s annuity starting date. Do not apply the exclusion
property beneficially owned by the decedent at the time of percentage to any cost-of-living increases made after that
death. Examples of property included in the gross estate date. Those increases are fully taxable. For more informa-
are salary or annuity payments that had accrued to an tion about the General Rule, get Publication 939.
employee or retiree, but which were not paid before death,
and the balance in the decedent’s TSP account. Simplified Method. If the retiree was reporting the annu-
ity under the Simplified Method, your tax-free monthly
The gross estate usually also includes the value of the
amount is the same as the retiree’s monthly exclusion
death and survivor benefits payable under the CSRS or the
(from line 4 of the Simplified Method Worksheet). This
FERS. If the federal employee died leaving no one eligible
amount remains fixed even if the monthly payment is
to receive a survivor annuity, the lump sum (representing
increased or decreased. A cost-of-living increase in your
the employee’s contribution to the system plus any ac-
survivor annuity payments does not change the amount
crued interest) payable to the estate or other beneficiary is
you can exclude from gross income.
included in the employee’s gross estate.
Exclusion limit. If the retiree’s annuity starting date was
Marital deduction. The estate tax marital deduction is a
before 1987, you can exclude the tax-free amount from all
deduction from the gross estate of the value of property
the annuity payments you receive. This includes any pay-
that is included in the gross estate but that passes, or has
ments received after you recover the cost tax free.
passed, to the surviving spouse. Generally, there is no limit
If the retiree’s annuity starting date is after 1986, you
on the amount of the marital deduction. Community prop-
can exclude the tax-free amount only until you recover the
erty passing to the surviving spouse qualifies for the mari-
cost tax free. The annuity payments you receive after you
tal deduction.
recover the annuity cost tax free are fully taxable.
More information. For more information, get Publication Deduction of unrecovered cost. If the annuity starting
950 and Publication 559, Survivors, Executors, and Ad- date is after July 1, 1986, and the survivor annuitant’s
ministrators. death occurs before all the cost is recovered tax free, the
unrecovered cost can be claimed as a miscellaneous item-
ized deduction (not subject to the 2%-of-adjusted-gross-in-
Part V come limit) for the annuitant’s last tax year.
Rules for Survivors Surviving spouse with child. If the survivor benefits in-
clude both a life annuity for the surviving spouse and one
of Federal Retirees or more temporary annuities for the retiree’s children, the
tax-free monthly amount that would otherwise apply to the
This part of the publication is for survivors of federal retir- life annuity must be allocated among the beneficiaries. To
ees. It explains how to treat amounts you receive because figure the tax-free monthly amount for each beneficiary,
of the retiree’s death. If you are the survivor of a federal multiply it by a fraction. The numerator of the fraction is the
employee, see Part IV. beneficiary’s monthly annuity and the denominator of the
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fraction is the total of the monthly annuity payments to all received within the same tax year. For more information,
the beneficiaries. see Lump-Sum Distributions in Publication 575.
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for the same tax year the portion of the federal estate tax Personal computer. With your personal com-
imposed on the decedent’s estate that is from the inclusion puter and modem, you can access the IRS on the
in the estate of the right to receive that amount. For this Internet at www.irs.gov. While visiting our web
purpose, if the decedent died after the annuity starting site, you can:
date, the taxable portion of a survivor annuity you receive
(other than a temporary annuity for a child) is considered
• Find answers to questions you may have.
income in respect of a decedent. • Download forms and publications or search for forms
The federal estate tax you can deduct is determined by and publications by topic or keyword.
comparing the actual federal estate tax and the tax that
would have been paid if the income in respect of the
• View forms that may be filled in electronically, print
the completed form, and then save the form for re-
decedent were not included in the gross estate.
cordkeeping.
Income tax deductions for the estate tax on the value of
your survivor annuity will be spread over the period of your • View Internal Revenue Bulletins published in the last
life expectancy. The deductions cannot be taken beyond few years.
your life expectancy. Moreover, if you should die before the
end of this period, there is no compensating adjustment for • Search regulations and the Internal Revenue Code.
the unused deductions. • Receive our electronic newsletters on hot tax issues
If the income in respect of the decedent is ordinary and news.
income, the estate tax must be deducted as a miscellane-
ous itemized deduction (not subject to the • Get information on starting and operating a small
2%-of-adjusted-gross-income limit). business.
For more information, see Income in Respect of the
Decedent in Publication 559. You can also reach us with your computer using File
Transfer Protocol at ftp.irs.gov.
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no longer than one week and use them only to mea- • Eastern part of U.S. and foreign addresses:
sure the quality of assistance. Eastern Area Distribution Center
P.O. Box 85074
• We value our customers’ opinions. Throughout this Richmond, VA 23261–5074
year, we will be surveying our customers for their
opinions on our service.
CD-ROM. You can order IRS Publication 1796,
Federal Tax Products on CD-ROM, and obtain:
Walk-in. You can walk in to many post offices,
libraries, and IRS offices to pick up certain forms,
instructions, and publications. Some IRS offices, • Current tax forms, instructions, and publications.
libraries, grocery stores, copy centers, city and county
governments, credit unions, and office supply stores have
• Prior-year tax forms and instructions.
an extensive collection of products available to print from a • Popular tax forms that may be filled in electronically,
CD-ROM or photocopy from reproducible proofs. Also, printed out for submission, and saved for record-
some IRS offices and libraries have the Internal Revenue keeping.
Code, regulations, Internal Revenue Bulletins, and Cumu-
lative Bulletins available for research purposes.
• Internal Revenue Bulletins.
The CD-ROM can be purchased from National Techni-
Mail. You can send your order for forms, instruc-
cal Information Service (NTIS) by calling
tions, and publications to the Distribution Center
1–877–233– 6767 or on the Internet at www.irs.gov. The
nearest to you and receive a response within 10
first release is available in mid-December and the final
workdays after your request is received. Find the address
release is available in late January.
that applies to your part of the country.
IRS Publication 3207, Small Business Resource Guide,
• Western part of U.S.: is an interactive CD-ROM that contains information impor-
Western Area Distribution Center tant to small businesses. It is available in mid-February.
Rancho Cordova, CA 95743– 0001 You can get one free copy by calling 1–800–829 –3676 or
visiting the IRS web site at www.irs.gov.
• Central part of U.S.:
Central Area Distribution Center
P.O. Box 8903
Bloomington, IL 61702–8903
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1. Enter the total annuity received this year. Also add this amount to the total for Form 1040,
line 16a, or Form 1040A, line 12a $
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
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
6. Enter any amounts previously recovered tax free in years after 1986
7. Subtract line 6 from line 2
8. Enter the smaller of line 5 or line 7
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 12b.
If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount on
this line instead $
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1. Enter your lump-sum credit (your cost in the plan at the annuity starting date) $
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Index
A CSF 1099R . . . . . . . . . . . . . . . . . 4 R
Alternative annuity option: W–4P–A . . . . . . . . . . . . . . . . . . 3 Reemployment after retirement . . . 10
How to report . . . . . . . . . . . . . . . 8 Free tax services . . . . . . . . . . . . . 23 Refund of contributions . . . . . . . . . . 2
Lump-sum payment . . . . . . . . . . 6 Retirees, rules for . . . . . . . . . . . . . . 4
Annual leave . . . . . . . . . . . . . . . . 10 G Retirement during the past year . . 10
Annuity starting date . . . . . . . . . . . . 4 General Rule . . . . . . . . . . . . . . 6, 21 Rollovers . . . . . . . . . . . . . . . . . . . 12
Annuity statement . . . . . . . . . . . . . . 4 Gift tax . . . . . . . . . . . . . . . . . . . . . 10
Annuity with survivor benefit . . . . . 17 S
Annuity without survivor benefit . . . 5 H Simplified Method . . . . . . . . . . . 5, 21
Assistance (See Tax help) Help (See Tax help) Substantial gainful activity . . . . . . . 16
Suggestions . . . . . . . . . . . . . . . . . . 2
B I Survivor annuity . . . . . . . . . 5, 17, 21
Benefits, how to report . . . . . . . . . 14 Income in respect of a decedent . . 22 Survivors of federal employees . . . 16
Income tax withholding . . . . . . . 2, 15 Survivors of federal retirees . . . . . 21
C
Child’s temporary annuity . . . . . . . 17 L T
Comments . . . . . . . . . . . . . . . . . . . 2 Lump-sum CSRS or FERS Tax help . . . . . . . . . . . . . . . . . . . . 23
Community property laws . . . . . . . 10 payment . . . . . . . . . . . . . . . 20, 22 Taxpayer Advocate . . . . . . . . . . . . 23
Contributions, refund of . . . . . . . . . 2 Lump-sum payment: Thrift Savings Plan . . . . . . . . . . 2, 11
Cost (contributions to retirement Alternative annuity option . . . . . . 6 TTY/TDD information . . . . . . . . . . 23
plan) . . . . . . . . . . . . . . . . . . . . . . 4 Installments . . . . . . . . . . . . . . . . 8
Credit for the disabled . . . . . . . . . 16 Lump-sum payments, U
Credit for the elderly . . . . . . . . . . . 16 withholding . . . . . . . . . . . . . . . . . 3
Unused annual leave . . . . . . . . . . 16
D M V
Death benefit . . . . . . . . . . . . . . . . 17 Mandatory retirement age . . . . . . . 16
Voluntary contributions . . . 10, 20, 22
Deduction for estate tax . . . . . . . . 22 Marital deduction . . . . . . . . . . . . . 21
Disability retirement . . . . . . . . . . . 14 Minimum retirement age . . . . . . . . 15
W
Disabled child . . . . . . . . . . . . . . . . 19 More information (See Tax help)
Withholding certificate . . . . . . . . . . 3
Distributions: Withholding of income tax . . . . . 2, 15
Qualified domestic relations N Worksheets:
order . . . . . . . . . . . . . . . . . . . 13 Nonresident alien retiree . . . . . . . . 10 Lump-sum payment
Withholding from TSP
(alternative annuity
payments . . . . . . . . . . . . . . . . 3 P option) . . . . . . . . . . . . . . . . 6, 26
Permanently and totally Lump-sum payment at end of
E disabled . . . . . . . . . . . . . . . . . . 16 survivor annuity . . . . . . . . . . . 20
Estate tax . . . . . . . . . . . . . . . . 21-22 Physician’s statement . . . . . . . . . . 16 Lump-sum payment to the
Estimated tax . . . . . . . . . . . . . . . 2-3 Public safety officers: estate or other beneficiary . . . 22
Dependents . . . . . . . . . . . . . . . 16 Nonresident alien retiree . . . . . . 10
F Survivors . . . . . . . . . . . . . . . . . 19 Simplified Method . . . . . . . . . . . 26
Federal Employees’ Publications (See Tax help)
■
Compensation Act (FECA) . . . . 15
Filing requirements . . . . . . . . . . . . .4 Q
Forms: Qualified domestic relations
1099–R . . . . . . . . . . . . . . . . . . .3 order . . . . . . . . . . . . . . . . . . . . . 13
CSA 1099R . . . . . . . . . . . . . . . . .3
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