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Compute The Tax Free Portion Of Your Federal Retirement Benefit

How Do I Get A Refund Of My Federal Or State Tax Withholdings

Your Retirement Estimate and Payment Options

OPM can refund federal and/or state income tax withholding only for the current year. Contact us to request a refund.

If you want a partial reimbursement, let us know the exact amount and provide the exact period . Normally, the refund is issued as a separate payment.

We cannot refund tax withholding for previous tax years. To request a refund of your withholdings for previous tax years, please contact the IRS at 1-800-829-1040 for a federal tax withholding refund and your state revenue office for a state tax withholding refund.

If You Forget To Factor In Taxes

If you forgot to consider the taxation of federal retirement benefits into your retirement planning somethings going to have to give.

Uncle Sam wants and will get his pound of flesh.

At first glance, living on $4,600 a month instead of $5,000 a month might not seem like such a big difference. And perhaps you could get by on less. But do you really want to?

And what if you really did need $5,000 a month to live on in retirement. Where is the extra money going to come from?

Most likely the extra money would be taken out of your TSP or perhaps a spouses 401 plan.

Now if you need an extra $400 a month how much will you have to take out of your TSP?

The answer not $4,800 but closer to $5,600.

***Please keep in mind this is just an example to demonstrate the impact of taxes. Everyones tax situation is unique, and there are often many other factors that affect your tax liability.***

Remember that money taken out of your TSP plan) is taxed when you take it out. So instead of an extra $4,800 a year coming out of your TSP, youll be drawing $5,600 a year to account for the taxes that youll owe on that money too.

How will this affect your retirement planning? Are you still sure that you can make your money last your entire life?

These are issues I dont want my clients to worry about. We make sure we consider the taxes theyll owe in retirement when we develop their financial and retirement plans.

Frequently Asked Questions About Retirement

There are many complexities involved in retiring from a Federal Government and other Public Sector positions, most particularly related to the benefits you are entitled to upon retirement. Here is a series of Questions and Answers for some of the most common issues that federal employees and retirees are interested in.

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Understanding The Taxation Of Federal Retirement Benefits

Weve just talked about some of the basics when it comes to taxes and your Federal Retirement.

If you havent already, you might want to check out IRS Pub 721

Make sure you understand the taxation of Federal Retirement benefits and be sure to consider taxes when you are planning your retirement.

If you dont understand federal taxes you should find a professional who does.

Pension Exclusion For Retired Correctional Officer Law Enforcement Officer Or Fire Rescue And Emergency Services Personnel

How To Calculate Retirement Tax

Note: An individual taxpayer may not claim BOTH the standard Pension Exclusion and the Pension Exclusion for Retired Correctional Officer, Law Enforcement Officer or Fire, Rescue, or Emergency Services Personnel.

If you are 65 or older on the last day of the calendar year, you are totally disabled, or your spouse is totally disabled, and you have received qualified pension income, you should complete the Pension Exclusion Computation Worksheet regardless of your prior work history. It is permissible for one spouse to claim the standard Pension Exclusion and the other spouse to claim the Pension Exclusion for Retired Correctional Officer, Law Enforcement Officer or Fire, Rescue, or Emergency Services Personnel if each spouse meets the applicable required criteria.

If you meet the below criteria, use the Retired Correctional Officer, Law Enforcement Officer or Fire, Rescue, or Emergency Services Personnel Pension Exclusion Worksheet to calculate your eligible pension exclusion:

  • You were 55 or over on the last day of the tax year, AND
  • You were not 65 or older, or totally disabled, or have a spouse who is totally disabled, AND
  • You included on your federal return taxable income received as a pension, annuity or endowment from an “employee retirement system.& rquot Please note that these include qualified defined benefit and defined contribution pension plans, 401 plans, 401 plans, 403 plans, and 457 plans qualified under Section 401, 403 or 457 of the Internal Revenue Code, AND
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    Q: Where Can I View A Statement For My Federal Retirement Annuity Payments Online

    A: Use Services Online to view your monthly annuity statement. This statement shows your current annuity payment, including the gross amount, up to 35 possible deductions or additions, and the net amount. The online statement reflects changes you made through the previous business day, unless the changes were made after the date for updating the monthly payment. Any changes you made after that date will be reflected in the statement for the next months payment, when the change would be effective. Please refer to the governments payment schedule for information on the dates by which changes must be made in each months payment. Your statement will also show required payment adjustments the government makes, such as cost-of-living adjustments, health benefit premium changes, federal income tax withholding table changes, and life insurance premium changes.

    State Tax Treatment Of Federal Annuities

    Each state has its own tax code, which determines whether your federal annuity is taxable and, if so, to what degree. If your state does tax federal annuities, you may want to enroll in the State Income Tax Withholding Program.

    For states that have a personal income tax, treatment of federal retirement benefits varies widely. Some states offer partial exemptions by income level, for example excluding the first several thousand dollars of annuity from state taxation. Some offer partial exemptions by age, for example treating annuitants over age 62, 65 or some other age more leniently. Others make special provisions for disability annuities or for annuities earned before a certain date.

    These state tax policies change continually. Check with your states tax department for the latest information on how your state treats federal retirement benefits.

    Some states have agreements with OPM under which you can arrange to have taxes withheld from your annuity. The amount is up to you. To check on your states status or to start, stop or change your income tax withholding in any of the participating jurisdictions after you retire, call OPMs Annuitant Express at 409-6528 and follow the directions given on the menu.

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    Can I Rollover My Refund Of Retirement Contributions

    You can rollover lump-sum payments representing your retirement contributions, including voluntary contributions, and applicable interest.

    An eligible payment can be paid either to you or directly to an individual retirement account or other employee-sponsored plan. Your choice will affect the amount of taxes you owe.

    We’re required to withhold federal income tax from taxable payments over $200 at the rate of 20 percent. However, you may choose to take all or part of these payments in a direct rollover to an individual retirement account or an employer-sponsored retirement plan that accepts rollovers. The taxable portion can be rolled over into the Thrift Saving Plan. If you make this election, we won’t withhold the federal income tax from the taxable payments.

    I Worked For A Period Of Time When Retirement Deductions Were Not Withheld From My Pay Will I Still Get Retirement Credit For That Time

    How Social Security Benefits are Taxed

    It depends on when you worked and whether you are covered by the Civil Service Retirement System or the Federal Employees Retirement System .

    Figure out which of the following conditions applies to you, and then contact your agency’s HR office for guidance:

    • Deposit service ending before October 1, 1982 and covered by the CSRS
    • Deposit service ending on or after October 1, 1982 and covered by the CSRS
    • Deposit service ending before January 1, 1989 and covered by FERS
    • Deposit service ending on or after January 1, 1989 and covered by FERS

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    Taxes On Fers And Csrs Annuity

    A retirees basic annuity is funded at least in part by contributions made to the relevant retirement system while employed. When a retiree begins receiving a monthly annuity, he or she is entitled to exclude the portion of the monthly benefit that is attributable to the retirees after-tax contributions to the relevant retirement system. The rules used to determine how the taxable portion of a retirees annuity is computed have changed over the years.

    The IRS uses a simplified method that calculates the tax-free portion of the monthly annuity by dividing the total investment by the number of monthly payments. When initially adopted in 1987, use of this method was optional but it is mandatory for persons retiring after November 30, 1997.

    The total investment is the amount contributed to either CSRS or FERS on an after-tax basis during employment. This information is provided to the retiree by OPM a short time after separation and also is shown on IRS Form 1099-R issued to the retiree by OPM in January of each year.

    The number of monthly payments depends upon whether the retiree elects to provide a survivor annuity. If the retiree does not elect a survivor annuity, the table below will be used to determine the number of monthly payments used in the formula.

    Age of Retiree | Number of Payments:

    131 to 140 | 260

    more than 140 | 210

    Computation of the excludable portion of the annuity payments may be illustrated by the following example:

    Thrift Savings Plan And Fers Retirement

    In this article, we will discuss the Thrift Savings Plan and the Federal Employees Retirement System . We will also examine the Minimum age to retire and contributions that can be made. These are the fundamental questions you should ask yourself to maximize your FERS Retirement Calculator plan. Hopefully, these tips will help you get started and achieve your retirement goals. So, start contributing today! After all, its the best time to start saving for retirement!

    Federal Employees Retirement System

    The Federal Employees Retirement System covers federal employees who were hired after January 1, 1984, and who switched from the CSRS during open seasons. Before joining FERS, former federal employees could opt to join the CSRS offset plan. Employees also have to pay 6.2 percent of their pay into the Social Security trust fund. A portion of this amount goes toward paying retirement benefits. For FERS, a maximum of $132,900 is taxable, and it covers employees in the federal government.

    Thrift Savings Plan

    The Thrift Savings Plan is a tax-deferred retirement savings plan offered to federal employees. It is similar to a 401 plan in the private sector. This retirement plan allows employees to allocate any percentage of their assets to whichever funds they choose. Contributions are matched up to 100%. Participants can contribute as much as 3% of their salary and earn a match of 50%.

    Minimum retirement age


    Impact of divorce

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    How Do You Minimize Taxes In Retirement

    The best way to minimize taxes in retirement is by planning ahead. Ideally, you would meet with a financial advisor who specializes in retirement planning well before your retirement date. A retirement planner can help you strategize about the vehicles you’ll use to fund your retirement and minimize taxes. It doesn’t hurt to consult a professional for advice even if you’re close to retirement, or already retired.

    General Annuity Payment Information

    How Do I Calculate Tax On My Pension

    Your first retirement check should arrive on or about the first of the month following your separation. For example, if you retire by no later than the 3rd of January your first check should arrive on or about the first of February. You will receive approximately 70 to 80% of what your actual monthly annuity will be for several months until OPM verifies your retirement calculations. Typically, the leave that you sell back will be paid within 6 to 8 weeks in a separate check. When you start receiving your regular retirement check OPM will send you a highly informative pamphlet that outlines your personal retirement plan including benefit elections, general guidance, contact information, your personal “CSA” or “CSF” retirement account number, and survivors information. OPM sends out updates to this pamphlet as changes occur. Keep this booklet with your estate plan and make sure it is easily accessible for your spouse and/or loved ones. Your retirement number is very important. You MUST use your retirement number for all correspondence with OPM.

    Direct Deposit of your annuity check

    Direct deposit is available to retirees residing in Canada but, generally, it is not available to those whose permanent address for receiving payments is outside the United States. However, retirees living outside the U.S. can arrange to have their payments electronically deposited in a U.S. bank.

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    How To Report Pension And Annuity Income

    Separate any 1099-R statements you receive into two piles: those from your IRA and those from your pension or annuity plans. You’ll report your IRA distributions on lines 4a and 4b of the 2021 Form 1040. Report your pension and annuity distributions on lines 5a and 5b. The 5a column is for your total distributions. The 5b column segregates the taxable amount.

    These lines may differ on tax returns on an annual basis. The IRS has revised Form 1040 a number of times since 2017. The appropriate lines can change by tax year. These lines apply to the 2021 tax return you’ll file in 2022.

    Ira And 401 Withdrawals

    Withdrawals from tax-deferred retirement accounts are taxed at ordinary income tax rates. These are long-term assets, but withdrawals aren’t taxed as long-term capital gains. IRA withdrawals, as well as withdrawals from 401 plans, 403 plans, and 457 plans, are reported on your tax return as ordinary income.

    Most people will pay some tax when they withdraw money from their IRA or other retirement plans. The amount of tax depends on the total amount of your income and deductions, and what tax bracket you’re in. You might not pay taxes on withdrawals if you have a year with more deductions than income, such as a year with a lot of medical expenses, and if you itemize your deductions to claim them.

    Roth IRA withdrawals are typically tax-free because you can’t take a tax deduction for your contributions in the year you make them. You’ve already paid taxes on this money once, so you won’t have to pay again when you take it back out.

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    Recovering An Annuitants Cost In The Retirement Plan Tax

    Any employee who retired from federal service after Nov. 18, 1996, must use the Simplified Method to determine the tax-free recovery of the cost in either their CSRS or FERS retirement. Under the Simplified Method, an annuitants monthly annuity payment is made up of two parts: The tax-free part that is a return of the annuitants cost in either the CSRS or FERS retirement and the taxable part that is the amount of the annuitants agency contributions to the CSRS or FERS retirement on behalf of the retired employee and interest earnings that have accrued tax-deferred over the years within the retirement plan.

    The tax-free portion of the annuity is a fixed dollar amount . The tax-free portion amount remains the same, even as the annuity increases over time with cost-of-living adjustments .

    Know The Earnings Limits

    Your Federal Retirement Annuity for CSRS and FERS

    Those hoping to work in retirement need to be especially careful if they’re planning to claim Social Security benefits early. Even if youâre just working part-time, itâs important to consider how that continuing income will affect your benefits.

    The SSA caps how much you are allowed to earn if you start taking your benefits before full retirement age, which is 66 for most baby boomers. For the most recent annual earned income cap, view the current annual contribution limits. For every $2 you earn over the limit, the SSA withholds $1 off the top of your benefits. Once you reach the year that you’ll turn full retirement age, the earned income cap goes up, and for every $3 you go over, itâs a $1 withholding during the months until your birthday.

    There is some good news, however: Because the penalty is determined by your individual earned income, if you retire early but your spouse doesn’t, your spouse’s earned income will not be factored into the earnings limit. Additionally, when you reach your full retirement age, the earnings limit disappears and Social Security will recalculate your benefit amount if you were negatively impacted by the earnings limit.

    Keep in mind, if you file your tax return jointly, your spouse’s earnings will be included when calculating your combined income for purposes of determining the taxation of your benefits.â1

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    Simplified Method To Determine The Tax

    Any federal retiree receiving a CSRS or FERS annuity after Nov. 18, 1996, must use the Simplified Method to figure the tax-free portion of the retirees CSRS or FERS annuity. Note that OPM has been determining the tax-free portion of the CSRS or FERS annuity since 2002. That means any federal employee who has retired from federal service since 2002 has seen on their CSA 1099-R statement both the gross annuity and the taxable annuity portion that they had received during the previous calendar year. OPM is using the Simplified Method to determine the tax-free portion of a CSRS or FERS annuitants monthly annuity.

    Under the Simplified Method, one determines the tax-free portion of each full monthly payment by dividing ones cost in the retirement plan by the number of months based on ones age in the year of the effective date of retirement. This number will differ depending on whether the annuity starting date is before Nov. 19, 1996, or after Nov. 18, 1996. If the annuity start is after 1997 and the annuity includes a survivor benefit for ones spouse, then the number of months divisor factor is based on the combined annuitants age and the spousal survivor annuitants age in the year of the effective date of the retirement.

    A copy of the Simplified Method worksheet is presented below:

    It is important to explain some important line items on the Simplified Method Worksheet:

    If the annuity starting date is before January 1, 1997, then Table 1 is used.

    Note the following:

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