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Hrblockfreefile 5. Hrblockfreefile   Student Loan Cancellations and Repayment Assistance Table of Contents Introduction Student Loan CancellationQualifying Loans Student Loan Repayment Assistance Introduction Generally, if you are responsible for making loan payments, and the loan is canceled (forgiven), you must include the amount that was forgiven in your gross income for tax purposes. Hrblockfreefile However, if you fulfill certain requirements, two types of student loan assistance may be tax free. Hrblockfreefile The types of assistance discussed in this chapter are: Student loan cancellation, and Student loan repayment assistance. Hrblockfreefile Student Loan Cancellation If your student loan is canceled, you may not have to include any amount in income. Hrblockfreefile This section describes the requirements for tax-free treatment of canceled student loans. Hrblockfreefile Qualifying Loans To qualify for tax-free treatment, for the cancellation of your loan, your loan must have been made by a qualified lender to assist you in attending an eligible educational institution and contain a provision that all or part of the debt will be canceled if you work: For a certain period of time, In certain professions, and For any of a broad class of employers. Hrblockfreefile The cancellation of your loan will not qualify for tax-free treatment if it is cancelled because of services you performed for the educational institution that made the loan or other organization that provided the funds. Hrblockfreefile See Exception, later. Hrblockfreefile Eligible educational institution. Hrblockfreefile   This is an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Hrblockfreefile Qualified lenders. Hrblockfreefile   These include the following. Hrblockfreefile The United States, or an instrumentality thereof. Hrblockfreefile A state, territory, or possession of the United States, or the District of Columbia, or any political subdivision thereof. Hrblockfreefile A public benefit corporation that is tax-exempt under section 501(c)(3); and that has assumed control of a state, county, or municipal hospital; and whose employees are considered public employees under state law. Hrblockfreefile An eligible educational institution, if the loan is made: As part of an agreement with an entity described in (1), (2), (3) under which the funds to make the loan were provided to the educational institution, or Under a program of the educational institution that is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs where the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt section 501(c)(3) organization. Hrblockfreefile   Occupations with unmet needs include medicine, nursing, teaching, and law. Hrblockfreefile Section 501(c)(3) organization. Hrblockfreefile   This is any corporation, community chest, fund, or foundation organized and operated exclusively for one or more of the following purposes. Hrblockfreefile Charitable. Hrblockfreefile Religious. Hrblockfreefile Educational. Hrblockfreefile Scientific. Hrblockfreefile Literary. Hrblockfreefile Testing for public safety. Hrblockfreefile Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment). Hrblockfreefile The prevention of cruelty to children or animals. Hrblockfreefile Exception. Hrblockfreefile   The cancellation of your loan does not qualify as tax-free student loan cancellation if your student loan was made by an educational institution and is canceled because of services you performed for the educational institution or other organization that provided the funds. Hrblockfreefile Refinanced Loan If you refinanced a student loan with another loan from an eligible educational institution or a tax-exempt organization, that loan may also be considered as made by a qualified lender. Hrblockfreefile The refinanced loan is considered made by a qualified lender if it is made under a program of the refinancing organization that is designed to encourage students to serve in occupations with unmet needs or in areas with unmet needs where the services required of the students are for or under the direction of a governmental unit or a tax-exempt section 501(c)(3) organization. Hrblockfreefile Student Loan Repayment Assistance Student loan repayments made to you are tax free if you received them for any of the following: The National Health Service Corps (NHSC) Loan Repayment Program (NHSC Loan Repayment Program). Hrblockfreefile A state education loan repayment program eligible for funds under the Public Health Service Act. Hrblockfreefile Any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in under served or health professional shortage areas (as determined by such state). Hrblockfreefile You cannot deduct the interest you paid on a student loan to the extent payments were made through your participation in the above programs. Hrblockfreefile Prev  Up  Next   Home   More Online Publications
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Hrblockfreefile Publication 721 - Main Content Table of Contents Part I General InformationRefund of Contributions Tax Withholding and Estimated Tax Filing Requirements Part II Rules for RetireesAnnuity starting date. Hrblockfreefile Gross monthly rate. Hrblockfreefile Your cost. Hrblockfreefile Choosing a survivor annuity after retirement. Hrblockfreefile Canceling a survivor annuity after retirement. Hrblockfreefile Annuity starting date after 1986. Hrblockfreefile Annuity starting date before 1987. Hrblockfreefile Simplified Method General Rule Three-Year Rule Alternative Annuity Option Federal Gift Tax Retirement During the Past Year Reemployment After Retirement Nonresident Aliens Thrift Savings Plan Rollover Rules Distributions Used To Pay Insurance Premiums for Public Safety Officers How To Report Benefits Part III Rules for Disability Retirement and Credit for the Elderly or the DisabledDisability Annuity Other Benefits Credit for the Elderly or the Disabled Part IV Rules for Survivors of Federal EmployeesFERS Death Benefit CSRS or FERS Survivor Annuity Lump-Sum CSRS or FERS Payment Thrift Savings Plan Federal Estate Tax Part V Rules for Survivors of Federal RetireesCSRS or FERS Survivor Annuity Lump-Sum CSRS or FERS Payment Voluntary Contributions Thrift Savings Plan Federal Estate Tax Income Tax Deduction for Estate Tax Paid How To Get Tax HelpLow Income Taxpayer Clinics Part I General Information This part of the publication contains information that can apply to most recipients of civil service retirement benefits. Hrblockfreefile Refund of Contributions If you leave federal government service or transfer to a job not under the CSRS or FERS and you are not eligible for an immediate annuity, you can choose to receive a refund of the money in your CSRS or FERS retirement account. Hrblockfreefile The refund will include both regular and voluntary contributions you made to the fund, plus any interest payable. Hrblockfreefile If the refund includes only your contributions, none of the refund is taxable. Hrblockfreefile If it includes any interest, the interest is taxable unless you roll it over directly into another qualified plan or a traditional individual retirement arrangement (IRA). Hrblockfreefile If you do not have the Office of Personnel Management (OPM) transfer the interest to an IRA or other plan in a direct rollover, tax will be withheld at a 20% rate. Hrblockfreefile See Rollover Rules in Part II for information on how to make a rollover. Hrblockfreefile Interest is not paid on contributions to the CSRS for service after 1956 unless your service was for more than 1 year but not more than 5 years. Hrblockfreefile Therefore, many employees who withdraw their contributions under the CSRS do not get interest and do not owe any tax on their refund. Hrblockfreefile If you do not roll over interest included in your refund, it may qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. Hrblockfreefile If you separate from service before the calendar year in which you reach age 55, it may be subject to an additional 10% tax on early distributions. Hrblockfreefile For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. Hrblockfreefile A lump-sum distribution is eligible for capital gain treatment or the 10-year tax option only if the plan participant was born before January 2, 1936. Hrblockfreefile Tax Withholding and Estimated Tax The CSRS or FERS annuity you receive is subject to federal income tax withholding, unless you choose not to have tax withheld. Hrblockfreefile OPM will tell you how to make the choice. Hrblockfreefile The choice for no withholding remains in effect until you change it. Hrblockfreefile These withholding rules also apply to a disability annuity, whether received before or after minimum retirement age. Hrblockfreefile If you choose not to have tax withheld, or if you do not have enough tax withheld, you may have to make estimated tax payments. Hrblockfreefile You may owe a penalty if the total of your withheld tax and estimated tax does not cover most of the tax shown on your return. Hrblockfreefile Generally, you will owe the penalty for 2014 if the additional tax you must pay with your return is $1,000 or more and more than 10% of the tax to be shown on your 2014 return. Hrblockfreefile For more information, including exceptions to the penalty, see chapter 4 of Publication 505, Tax Withholding and Estimated Tax. Hrblockfreefile Form CSA 1099R. Hrblockfreefile   Form CSA 1099R is mailed to you by OPM each year. Hrblockfreefile It will show any tax you had withheld. Hrblockfreefile File a copy of Form CSA 1099R with your tax return if any federal income tax was withheld. Hrblockfreefile    You also can view and download your Form CSA 1099R by visiting the OPM website at  www. Hrblockfreefile servicesonline. Hrblockfreefile opm. Hrblockfreefile gov. Hrblockfreefile To log in, you will need your retirement CSA claim number and your personal identification number. Hrblockfreefile Choosing no withholding on payments outside the United States. Hrblockfreefile   The choice for no withholding generally cannot be made for annuity payments to be delivered outside the United States and its possessions. Hrblockfreefile   To choose no withholding if you are a U. Hrblockfreefile S. Hrblockfreefile citizen or resident alien, you must provide OPM with your home address in the United States or its possessions. Hrblockfreefile Otherwise, OPM has to withhold tax. Hrblockfreefile For example, OPM must withhold if you provide a U. Hrblockfreefile S. Hrblockfreefile address for a nominee, trustee, or agent (such as a bank) to whom the benefits are to be delivered, but you do not provide your own U. Hrblockfreefile S. Hrblockfreefile home address. Hrblockfreefile   If you do not provide a home address in the United States or its possessions, you can choose not to have tax withheld only if you certify to OPM that you are not a U. Hrblockfreefile S. Hrblockfreefile citizen, a U. Hrblockfreefile S. Hrblockfreefile resident alien, or someone who left the United States to avoid tax. Hrblockfreefile But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. Hrblockfreefile For details, see Publication 519, U. Hrblockfreefile S. Hrblockfreefile Tax Guide for Aliens. Hrblockfreefile Withholding certificate. Hrblockfreefile   If you give OPM a Form W-4P-A, Election of Federal Income Tax Withholding, you can choose not to have tax withheld or you can choose to have tax withheld. Hrblockfreefile The amount of tax withheld depends on your marital status, the number of withholding allowances, and any additional amount you designate to be withheld. Hrblockfreefile If you do not make either of these choices, OPM must withhold as if you were married with three withholding allowances. Hrblockfreefile To change the amount of tax withholding or to stop withholding, call OPM's Retirement Information Office at 1-888-767-6738 (customers within the local Washington, D. Hrblockfreefile C. Hrblockfreefile calling area must call 202-606-0500). Hrblockfreefile No special form is needed. Hrblockfreefile You will need your retirement CSA or CSF claim number, your social security number, and your personal identification number (PIN) when you call. Hrblockfreefile If you have TTY/TDD equipment, call 1-855–887–4957. Hrblockfreefile If you need a PIN, call OPM's Retirement Information Office. Hrblockfreefile You also can change the amount of withholding or stop withholding online by visiting the OPM website at www. Hrblockfreefile servicesonline. Hrblockfreefile opm. Hrblockfreefile gov. Hrblockfreefile You will need your retirement CSA or CSF claim number and your PIN. Hrblockfreefile Withholding from certain lump-sum payments. Hrblockfreefile   If you leave the federal government before becoming eligible to retire and you apply for a refund of your CSRS or FERS contributions, or you die without leaving a survivor eligible for an annuity, you or your beneficiary will receive a distribution of your contributions to the retirement plan plus any interest payable. Hrblockfreefile Tax will be withheld at a 20% rate on the interest distributed. Hrblockfreefile However, tax will not be withheld if you have OPM transfer (roll over) the interest directly to your traditional IRA or other qualified plan. Hrblockfreefile If you have OPM transfer (roll over) the interest directly to a Roth IRA, the entire amount will be taxed in the current year. Hrblockfreefile Because no income tax will be withheld at the time of the transfer, you may want to increase your withholding or pay estimated taxes. Hrblockfreefile See Rollover Rules in Part II. Hrblockfreefile If you receive only your contributions, no tax will be withheld. Hrblockfreefile Withholding from Thrift Savings Plan payments. Hrblockfreefile   Generally, a distribution that you receive from the TSP is subject to federal income tax withholding. Hrblockfreefile The amount withheld is: 20% if the distribution is an eligible rollover distribution, 10% if it is a nonperiodic distribution other than an eligible rollover distribution, or An amount determined as if you were married with three withholding allowances, unless you submit a withholding certificate (Form W-4P), if it is a periodic distribution. Hrblockfreefile  However, you usually can choose not to have tax withheld from TSP payments other than eligible rollover distributions. Hrblockfreefile By January 31 after the end of the year in which you receive a distribution, the TSP will issue Form 1099-R showing the total distributions you received in the prior year and the amount of tax withheld. Hrblockfreefile   For a detailed discussion of withholding on distributions from the TSP, see Important Tax Information About Payments From Your TSP Account, available from your agency personnel office or from the TSP. Hrblockfreefile The above document is also available in the “Forms & Publications” section of the TSP website at www. Hrblockfreefile tsp. Hrblockfreefile gov. Hrblockfreefile Estimated tax. Hrblockfreefile   Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax for 2014 (after subtracting your withholding and credits) and you expect your withholding and your credits to be less than the smaller of: 90% of the tax to be shown on your income tax return for 2014, or 100% of the tax shown on your 2013 income tax return (110% of that amount if the adjusted gross income shown on the return was more than $150,000 ($75,000 if your filing status for 2014 will be married filing separately)). Hrblockfreefile The return must cover all 12 months. Hrblockfreefile   You do not have to pay estimated tax for 2014 if you were a U. Hrblockfreefile S. Hrblockfreefile citizen or resident alien for all of 2013 and you had no tax liability for the full 12-month 2013 tax year. Hrblockfreefile   Publication 505 contains information that you can use to help you figure your estimated tax payments. Hrblockfreefile Filing Requirements If your gross income, including the taxable part of your annuity, is less than a certain amount, you generally do not have to file a federal income tax return for that year. Hrblockfreefile The gross income filing requirements for the tax year are in the instructions to Form 1040, 1040A, or 1040EZ. Hrblockfreefile Children. Hrblockfreefile   If you are the surviving spouse of a federal employee or retiree and your monthly annuity check includes a survivor annuity for one or more children, each child's annuity counts as his or her own income (not yours) for federal income tax purposes. Hrblockfreefile   If your child can be claimed as a dependent, treat the taxable part of his or her annuity as unearned income when applying the filing requirements for dependents. Hrblockfreefile Form CSF 1099R. Hrblockfreefile   Form CSF 1099R will be mailed to you by January 31 after the end of each tax year. Hrblockfreefile It will show the total amount of the annuity you received in the past year. Hrblockfreefile It also should show, separately, the survivor annuity for a child or children. Hrblockfreefile Only the part that is each individual's survivor annuity should be shown on that individual's Form 1040 or 1040A. Hrblockfreefile   If your Form CSF 1099R does not show separately the amount paid to you for a child or children, attach a statement to your return, along with a copy of Form CSF 1099R, explaining why the amount shown on the tax return differs from the amount shown on Form CSF 1099R. Hrblockfreefile    You also can view and download your Form CSF 1099R by visiting the OPM website at  www. Hrblockfreefile servicesonline. Hrblockfreefile opm. Hrblockfreefile gov. Hrblockfreefile To log in you will need your retirement CSF claim number and personal identification number. Hrblockfreefile    You may request a Summary of Payments, showing the amounts paid to you for your child(ren), from OPM by calling OPM's Retirement Information Office at 1-888-767-6738 (customers within the local Washington, D. Hrblockfreefile C. Hrblockfreefile calling area must call 202-606-0500). Hrblockfreefile You will need your CSF claim number and your social security number when you call. Hrblockfreefile Taxable part of annuity. Hrblockfreefile   To find the taxable part of a retiree's annuity when applying the filing requirements, see the discussion in Part II, Rules for Retirees , or Part III, Rules for Disability Retirement and Credit for the Elderly or the Disabled , whichever applies. Hrblockfreefile To find the taxable part of each survivor annuity when applying the filing requirements, see the discussion in Part IV, Rules for Survivors of Federal Employees , or Part V, Rules for Survivors of Federal Retirees , whichever applies. Hrblockfreefile Part II Rules for Retirees This part of the publication is for retirees who retired on nondisability retirement. Hrblockfreefile If you retired on disability before you reached your minimum retirement age, see Part III, Rules for Disability Retirement and Credit for the Elderly or the Disabled. Hrblockfreefile However, on the day after you reach your minimum retirement age, use the rules in this section to report your disability retirement and begin recovering your cost. Hrblockfreefile Annuity statement. Hrblockfreefile   The statement you received from OPM when your CSRS or FERS annuity was approved shows the commencing date (the annuity starting date), the gross monthly rate of your annuity benefit, and your total contributions to the retirement plan (your cost). Hrblockfreefile You will use this information to figure the tax-free recovery of your cost. Hrblockfreefile Annuity starting date. Hrblockfreefile   If you retire from federal government service on a regular annuity, your annuity starting date is the commencing date on your annuity statement from OPM. Hrblockfreefile If something delays payment of your annuity, such as a late application for retirement, it does not affect the date your annuity begins to accrue or your annuity starting date. Hrblockfreefile Gross monthly rate. Hrblockfreefile   This is the amount you were to get after any adjustment for electing a survivor's annuity or for electing the lump-sum payment under the alternative annuity option (if either applied) but before any deduction for income tax withholding, insurance premiums, etc. Hrblockfreefile Your cost. Hrblockfreefile   Your monthly annuity payment contains an amount on which you have previously paid income tax. Hrblockfreefile This amount represents part of your contributions to the retirement plan. Hrblockfreefile Even though you did not receive the money that was contributed to the plan, it was included in your gross income for federal income tax purposes in the years it was taken out of your pay. Hrblockfreefile   The cost of your annuity is the total of your contributions to the retirement plan, as shown on your annuity statement from OPM. Hrblockfreefile If you elected the alternative annuity option, it includes any deemed deposits and any deemed redeposits that were added to your lump-sum credit. Hrblockfreefile (See Lump-sum credit under Alternative Annuity Option, later. Hrblockfreefile )   If you repaid contributions that you had withdrawn from the retirement plan earlier, or if you paid into the plan to receive full credit for service not subject to retirement deductions, the entire repayment, including any interest, is a part of your cost. Hrblockfreefile You cannot claim an interest deduction for any interest payments. Hrblockfreefile You cannot treat these payments as voluntary contributions; they are considered regular employee contributions. Hrblockfreefile Recovering your cost tax free. Hrblockfreefile   How you figure the tax-free recovery of the cost of your CSRS or FERS annuity depends on your annuity starting date. Hrblockfreefile If your annuity starting date is before July 2, 1986, either the Three-Year Rule or the General Rule (both discussed later) applies to your annuity. Hrblockfreefile If your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the General Rule or the Simplified Method (discussed later). Hrblockfreefile If your annuity starting date is after November 18, 1996, you must use the Simplified Method. Hrblockfreefile   Under both the General Rule and the Simplified Method, each of your monthly annuity payments is made up of two 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 more than the part that represents your cost (unless such payment is used for purposes discussed under Distributions Used To Pay Insurance Premiums for Public Safety Officers , later). Hrblockfreefile The tax-free part is a fixed dollar amount. Hrblockfreefile It remains the same, even if your annuity is increased. Hrblockfreefile Generally, this rule applies as long as you receive your annuity. Hrblockfreefile However, see Exclusion limit , later. Hrblockfreefile Choosing a survivor annuity after retirement. Hrblockfreefile    If you retired without a survivor annuity and report your annuity under the Simplified Method, do not change your tax-free monthly amount even if you later choose a survivor annuity. Hrblockfreefile   If you retired without a survivor annuity and report your annuity under the General Rule, you must figure the tax-free part of your annuity using a new exclusion percentage if you later choose a survivor annuity and take reduced annuity payments. Hrblockfreefile To figure the new exclusion percentage, reduce your cost by the amount you previously recovered tax free. Hrblockfreefile Figure the expected return as of the date the reduced annuity begins. Hrblockfreefile For details on the General Rule, see Publication 939. Hrblockfreefile Canceling a survivor annuity after retirement. Hrblockfreefile   If you retired with a survivor annuity payable to your spouse upon your death and you notify OPM that your marriage has ended, your annuity might be increased to remove the reduction for a survivor benefit. Hrblockfreefile The increased annuity does not change the cost recovery you figured at the annuity starting date. Hrblockfreefile The tax-free part of each annuity payment remains the same. Hrblockfreefile    For more information about choosing or canceling a survivor annuity after retirement, contact OPM's Retirement Information Office at 1-888-767-6738 (customers within the local Washington, D. Hrblockfreefile C. Hrblockfreefile calling area must call 202-606-0500). Hrblockfreefile Exclusion limit. Hrblockfreefile   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. Hrblockfreefile Annuity starting date after 1986. Hrblockfreefile   If your annuity starting date is after 1986, the total amount of annuity income that you (or the survivor annuitant) can exclude over the years as a return of your cost cannot exceed your total cost. Hrblockfreefile Annuity payments you or your survivors receive after the total cost in the plan has been recovered are generally fully taxable. Hrblockfreefile Example. Hrblockfreefile Your annuity starting date is after 1986 and you exclude $100 a month under the Simplified Method. Hrblockfreefile If your cost is $12,000, the exclusion ends after 10 years (120 months). Hrblockfreefile Thereafter, your entire annuity is generally fully taxable. Hrblockfreefile Annuity starting date before 1987. Hrblockfreefile   If your annuity starting date is before 1987, you can continue to take your monthly exclusion figured under the General Rule or Simplified Method for as long as you receive your annuity. Hrblockfreefile If you chose a joint and survivor annuity, your survivor can continue to take that same exclusion. Hrblockfreefile The total exclusion may be more than your cost. Hrblockfreefile Deduction of unrecovered cost. Hrblockfreefile   If your annuity starting date is after July 1, 1986, and the cost of your annuity has not been fully recovered at your (or the survivor annuitant's) death, a deduction is allowed for the unrecovered cost. Hrblockfreefile The deduction is claimed on your (or your survivor's) final tax return as a miscellaneous itemized deduction (not subject to the 2%-of-adjusted-gross-income limit). Hrblockfreefile If your annuity starting date is before July 2, 1986, no tax benefit is allowed for any unrecovered cost at death. Hrblockfreefile Simplified Method If your annuity starting date is after November 18, 1996, you must use the Simplified Method to figure the tax-free part of your CSRS or FERS annuity. Hrblockfreefile (OPM has figured the taxable amount of your annuity shown on your Form CSA 1099R using the Simplified Method. Hrblockfreefile ) You could have chosen to use either the Simplified Method or the General Rule if your annuity starting date is after July 1, 1986, but before November 19, 1996. Hrblockfreefile The Simplified Method does not apply if your annuity starting date is before July 2, 1986. Hrblockfreefile Under the Simplified Method, you figure the tax-free part of each full monthly payment by dividing your cost by a number of months based on your age. Hrblockfreefile This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Hrblockfreefile If your annuity starting date is after 1997 and your annuity includes a survivor benefit for your spouse, this number is based on your combined ages. Hrblockfreefile Worksheet A. Hrblockfreefile   Use Worksheet A. Hrblockfreefile Simplified Method (near the end of this publication), to figure your taxable annuity. Hrblockfreefile Be sure to keep the completed worksheet. Hrblockfreefile It will help you figure your taxable amounts for later years. Hrblockfreefile Instead of Worksheet A, you generally can use the Simplified Method Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR to figure your taxable annuity. Hrblockfreefile However, you must use Worksheet A and Worksheet B in this publication if you chose the alternative annuity option, discussed later. Hrblockfreefile Line 2. Hrblockfreefile   See Your cost , earlier, for an explanation of your cost in the plan. Hrblockfreefile If your annuity starting date is after November 18, 1996, and you chose the alternative annuity option (explained later), you must reduce your cost by the tax-free part of the lump-sum payment you received. Hrblockfreefile Line 3. Hrblockfreefile   The number you enter on line 3 is the appropriate number from Table 1 or 2 representing approximate life expectancies in months. Hrblockfreefile If your annuity starting date is after 1997, use: Table 1 for an annuity without a survivor benefit, or Table 2 for an annuity with a survivor benefit. Hrblockfreefile If your annuity starting date is before 1998, use Table 1. Hrblockfreefile Line 6. Hrblockfreefile   If you received contributions tax free before 2013, the amount previously recovered tax free that you must enter on line 6 is the total amount from line 10 of last year's worksheet. Hrblockfreefile If your annuity starting date is before November 19, 1996, and you chose the alternative annuity option, this amount includes the tax-free part of the lump-sum payment you received. Hrblockfreefile Example. Hrblockfreefile Bill Smith retired from the Federal Government on March 31, 2013, under an annuity that will provide a survivor benefit for his wife, Kathy. Hrblockfreefile His annuity starting date is April 1, 2013, the annuity is paid in arrears, and he received his first monthly annuity payment on May 1, 2013. Hrblockfreefile He must use the Simplified Method to figure the tax-free part of his annuity benefits. Hrblockfreefile Bill's monthly annuity benefit is $1,000. Hrblockfreefile He had contributed $31,000 to his retirement plan and had received no distributions before his annuity starting date. Hrblockfreefile At his annuity starting date, he was 65 and Kathy was 57. Hrblockfreefile Bill's completed Worksheet A is shown later. Hrblockfreefile To complete line 3, he used Table 2 at the bottom of the worksheet and found that 310 is the number in the second column opposite the age range that includes 122 (his and Kathy's combined ages). Hrblockfreefile Bill keeps a copy of the completed worksheet for his records. Hrblockfreefile It will help him (and Kathy, if she survives him) figure the taxable amount of the annuity in later years. Hrblockfreefile Bill's tax-free monthly amount is $100. Hrblockfreefile (See line 4 of the worksheet. Hrblockfreefile ) If he lives to collect more than 310 monthly payments, he will generally have to include in his gross income the full amount of any annuity payments received after 310 payments have been made. Hrblockfreefile If Bill does not live to collect 310 monthly payments and his wife begins to receive monthly payments, she also will exclude $100 from each monthly payment until 310 payments (Bill's and hers) have been collected. Hrblockfreefile If she dies before 310 payments have been made, a miscellaneous itemized deduction (not subject to the 2%-of-adjusted- gross-income limit) will be allowed for the unrecovered cost on her final income tax return. Hrblockfreefile General Rule If your annuity starting date is after November 18, 1996, you cannot use the General Rule to figure the tax-free part of your CSRS or FERS annuity. Hrblockfreefile If your annuity starting date is after July 1, 1986, but before November 19, 1996, you could have chosen to use either the General Rule or the Simplified Method. Hrblockfreefile If your annuity starting date is before July 2, 1986, you could have chosen to use the General Rule only if you could not use the Three-Year Rule. Hrblockfreefile Under the General Rule, you figure the tax-free part of each full monthly payment by multiplying the initial gross monthly rate of your annuity by an exclusion percentage. Hrblockfreefile Figuring this percentage is complex and requires the use of actuarial tables. Hrblockfreefile For these tables and other information about using the General Rule, see Publication 939. Hrblockfreefile Three-Year Rule If your annuity starting date was before July 2, 1986, you probably had to report your annuity using the Three-Year Rule. Hrblockfreefile Under this rule, you excluded all the annuity payments from income until you fully recovered your cost. Hrblockfreefile After your cost was recovered, all payments became fully taxable. Hrblockfreefile You cannot use another rule to again exclude amounts from income. Hrblockfreefile The Three-Year Rule was repealed for retirees whose annuity starting date is after July 1, 1986. Hrblockfreefile Worksheet A. Hrblockfreefile Simplified Method for Bill Smith See the instructions in Part II of this publication under Simplified Method. Hrblockfreefile 1. Hrblockfreefile Enter the total pension or annuity payments received this year. Hrblockfreefile Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Hrblockfreefile $ 8,000 2. Hrblockfreefile Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. Hrblockfreefile See Your cost in Part II, Rules for Retirees, earlier 2. Hrblockfreefile 31,000 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 (even if the amount of your pension or annuity has changed). Hrblockfreefile Otherwise, go to line 3. Hrblockfreefile   3. Hrblockfreefile Enter the appropriate number from Table 1 below. Hrblockfreefile 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. Hrblockfreefile 3. Hrblockfreefile 310 4. Hrblockfreefile Divide line 2 by the number on line 3 4. Hrblockfreefile 100 5. Hrblockfreefile Multiply line 4 by the number of months for which this year's payments were made. Hrblockfreefile If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Hrblockfreefile Otherwise, go to line 6 5. Hrblockfreefile 800 6. Hrblockfreefile Enter any amounts previously recovered tax free in years after 1986. Hrblockfreefile This is the amount shown on line 10 of your worksheet for last year 6. Hrblockfreefile 0 7. Hrblockfreefile Subtract line 6 from line 2 7. Hrblockfreefile 31,000 8. Hrblockfreefile Enter the smaller of line 5 or line 7 8. Hrblockfreefile 800 9. Hrblockfreefile Taxable amount for year. Hrblockfreefile Subtract line 8 from line 1. Hrblockfreefile Enter the result, but not less than zero. Hrblockfreefile Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. Hrblockfreefile If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. Hrblockfreefile If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. Hrblockfreefile If you are a retired public safety officer, see Distributions Used To Pay Insurance Premiums for Public Safety Officers in Part II before entering an amount on your tax return or Worksheet C, line 1 9. Hrblockfreefile $7,200 10. Hrblockfreefile Was your annuity starting date before 1987?   Yes. Hrblockfreefile Do not complete the rest of this worksheet. Hrblockfreefile    No. Hrblockfreefile Add lines 6 and 8. Hrblockfreefile This is the amount you have recovered tax free through 2013. Hrblockfreefile You will need this number if you need to fill out this worksheet next year 10. Hrblockfreefile 800 11. Hrblockfreefile Balance of cost to be recovered. Hrblockfreefile Subtract line 10 from line 2. Hrblockfreefile If zero, you will not have to complete this worksheet next year. Hrblockfreefile The payments you receive next year will generally be fully taxable 11. Hrblockfreefile $30,200 Table 1 for Line 3 Above    IF your age on your  annuity starting date was   AND your annuity starting date was—     before November 19, 1996,  THEN enter on line 3 after November 18, 1996,  THEN enter on line 3   55 or under 300 360   56–60 260 310   61–65 240 260   66–70 170 210   71 or over 120 160  Table 2 for Line 3 Above    IF the annuitants' combined ages on your annuity starting date were   THEN enter on line 3         110 or under   410         111–120   360         121–130   310         131–140   260         141 or over   210       * A death benefit exclusion of up to $5,000 applied to certain benefits received by survivors of employees who died before August 21, 1996. Hrblockfreefile Alternative Annuity Option If you are eligible, you may choose an alternative form of annuity. Hrblockfreefile If you make this choice, you will receive a lump-sum payment equal to your contributions to the plan and a reduced monthly annuity. Hrblockfreefile You are eligible to make this choice if you meet all of the following requirements. Hrblockfreefile You are retiring, but not on disability. Hrblockfreefile You have a life-threatening illness or other critical medical condition. Hrblockfreefile You do not have a former spouse entitled to court ordered benefits based on your service. Hrblockfreefile If you are not eligible or do not choose this alternative annuity, you can skip the following discussion and go to Federal Gift Tax , later. Hrblockfreefile Lump-Sum Payment The lump-sum payment you receive under the alternative annuity option generally has a tax-free part and a taxable part. Hrblockfreefile The tax-free part represents part of your cost. Hrblockfreefile The taxable part represents part of the earnings on your annuity contract. Hrblockfreefile Your lump-sum credit (discussed later) may include a deemed deposit or redeposit that is treated as being included in your lump-sum payment even though you do not actually receive such amounts. Hrblockfreefile Deemed deposits and redeposits, which are described later under Lump-sum credit , are taxable to you in the year of retirement. Hrblockfreefile Your taxable amount may therefore be more than the lump-sum payment you receive. Hrblockfreefile You must include the taxable part of the lump-sum payment in your income for the year you receive the payment unless you roll it over into another qualified plan or an IRA. Hrblockfreefile If you do not have OPM transfer the taxable amount to an IRA or other plan in a direct rollover, tax will be withheld at a 20% rate. Hrblockfreefile See Rollover Rules , later, for information on how to make a rollover. Hrblockfreefile OPM can make a direct rollover only up to the amount of the lump-sum payment. Hrblockfreefile Therefore, to defer tax on the full taxable amount if it is more than the payment, you must add funds from another source. Hrblockfreefile The taxable part of the lump-sum payment does not qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. Hrblockfreefile It also may be subject to an additional 10% tax on early distributions if you separate from service before the calendar year in which you reach age 55, even if you reach age 55 in the year you receive the lump-sum payment. Hrblockfreefile For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. Hrblockfreefile Worksheet B. Hrblockfreefile   Use Worksheet B. Hrblockfreefile Lump-Sum Payment (near the end of this publication), to figure the taxable part of your lump-sum payment. Hrblockfreefile Be sure to keep the completed worksheet for your records. Hrblockfreefile   To complete the worksheet, you will need to know the amount of your lump-sum credit and the present value of your annuity contract. Hrblockfreefile Lump-sum credit. Hrblockfreefile   Generally, this is the same amount as the lump-sum payment you receive (the total of your contributions to the retirement system). Hrblockfreefile However, for purposes of the alternative annuity option, your lump-sum credit also may include deemed deposits and redeposits that OPM advanced to your retirement account so that you are given credit for the service they represent. Hrblockfreefile Deemed deposits (including interest) are for federal employment during which no retirement contributions were taken out of your pay. Hrblockfreefile Deemed redeposits (including interest) are for any refunds of retirement contributions that you received and did not repay. Hrblockfreefile You are treated as if you had received a lump-sum payment equal to the amount of your lump-sum credit and then had made a repayment to OPM of the advanced amounts. Hrblockfreefile Present value of your annuity contract. Hrblockfreefile   The present value of your annuity contract is figured using actuarial tables provided by the IRS. Hrblockfreefile If you are receiving a lump-sum payment under the Alternative Annuity Option, you can write to the address below to find out the present value of your annuity contract. Hrblockfreefile Internal Revenue Service Attn: Actuarial Group 2 TE/GE SE:T:EP:RA:T:A2 NCA-629 1111 Constitution Ave. Hrblockfreefile , NW Washington, DC 20224-0002 Example. Hrblockfreefile David Brown retired from the federal government in 2013, one month after his 55th birthday. Hrblockfreefile He had contributed $31,000 to his retirement plan and chose to receive a lump-sum payment of that amount under the alternative annuity option. Hrblockfreefile The present value of his annuity contract was $155,000. Hrblockfreefile The tax-free part and the taxable part of the lump-sum payment are figured using Worksheet B, as shown below. Hrblockfreefile The taxable part ($24,800) is also his net cost in the plan, which is used to figure the taxable part of his reduced annuity payments. Hrblockfreefile See Reduced Annuity , later. Hrblockfreefile Worksheet B. Hrblockfreefile Lump-Sum Payment for David Brown See the instructions in Part II of this publication under Alternative Annuity Option . Hrblockfreefile  1. Hrblockfreefile Enter your lump-sum credit (your cost in the plan at the annuity starting date) 1. Hrblockfreefile $ 31,000 2. Hrblockfreefile Enter the present value of your annuity contract 2. Hrblockfreefile 155,000 3. Hrblockfreefile Divide line 1 by line 2 3. Hrblockfreefile . Hrblockfreefile 20 4. Hrblockfreefile Tax-free amount. Hrblockfreefile Multiply line 1 by line 3. Hrblockfreefile (Caution: Do not include this amount on line 6 of Worksheet A in this publication. Hrblockfreefile ) 4. Hrblockfreefile $6,200 5. Hrblockfreefile Taxable amount (net cost in the plan). Hrblockfreefile Subtract line 4 from line 1. Hrblockfreefile Include this amount in the total on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Hrblockfreefile Also, enter this amount on line 2 of Worksheet A in this publication. Hrblockfreefile 5. Hrblockfreefile $24,800   Lump-sum payment in installments. Hrblockfreefile   If you choose the alternative annuity option, you usually will receive the lump-sum payment in two equal installments. Hrblockfreefile You will receive the first installment after you make the choice upon retirement. Hrblockfreefile The second installment will be paid to you, with interest, in the next calendar year. Hrblockfreefile (Exceptions to the installment rule are provided for cases of critical medical need. Hrblockfreefile )   Even though the lump-sum payment is made in installments, the overall tax treatment (explained at the beginning of this discussion) is the same as if the whole payment were paid at once. Hrblockfreefile If the payment has a tax-free part, you must treat the taxable part as received first. Hrblockfreefile How to report. Hrblockfreefile   Add any actual or deemed payment of your lump-sum credit (defined earlier) to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Hrblockfreefile Add the taxable part to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b, unless you roll over the taxable part to your traditional IRA or a qualified retirement plan. Hrblockfreefile    If you receive the lump-sum payment in two installments, include any interest paid with the second installment on line 8a of either Form 1040 or Form 1040A, or on line 9a of Form 1040NR. Hrblockfreefile Reduced Annuity If you have chosen to receive a lump-sum payment under the alternative annuity option, you also will receive reduced monthly annuity payments. Hrblockfreefile These annuity payments each will have a tax-free and a taxable part. Hrblockfreefile To figure the tax-free part of each annuity payment, you must use the Simplified Method (Worksheet A). Hrblockfreefile For instructions on how to complete the worksheet, see Worksheet A under Simplified Method, earlier. Hrblockfreefile To complete Worksheet A, line 2, you must reduce your cost in the plan by the tax-free part of the lump-sum payment you received. Hrblockfreefile Enter as your net cost on line 2 the amount from Worksheet B, line 5. Hrblockfreefile Do not include the tax-free part of the lump-sum payment with other amounts recovered tax free (Worksheet A, line 6) when limiting your total exclusion to your total cost. Hrblockfreefile Example. Hrblockfreefile The facts are the same as in the example for David Brown in the preceding discussion. Hrblockfreefile In addition, David received 10 annuity payments in 2013 of $1,200 each. Hrblockfreefile Using Worksheet A, he figures the taxable part of his annuity payments. Hrblockfreefile He completes line 2 by reducing his $31,000 cost by the $6,200 tax-free part of his lump-sum payment. Hrblockfreefile His entry on line 2 is his $24,800 net cost in the plan (the amount from Worksheet B, line 5). Hrblockfreefile He does not include the tax-free part of his lump-sum payment on Worksheet A, line 6. Hrblockfreefile David's filled-in Worksheet A is shown on the next page. Hrblockfreefile Worksheet A. Hrblockfreefile Simplified Method for David Brown See the instructions in Part II of this publication under Simplified Method . Hrblockfreefile 1. Hrblockfreefile Enter the total pension or annuity payments received this year. Hrblockfreefile Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Hrblockfreefile $ 12,000 2. Hrblockfreefile Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. Hrblockfreefile See Your cost in Part II, Rules for Retirees, earlier 2. Hrblockfreefile 24,800 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 (even if the amount of your pension or annuity has changed). Hrblockfreefile Otherwise, go to line 3. Hrblockfreefile   3. Hrblockfreefile Enter the appropriate number from Table 1 below. Hrblockfreefile 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. Hrblockfreefile 3. Hrblockfreefile 360 4. Hrblockfreefile Divide line 2 by the number on line 3 4. Hrblockfreefile 68. Hrblockfreefile 89 5. Hrblockfreefile Multiply line 4 by the number of months for which this year's payments were made. Hrblockfreefile If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Hrblockfreefile Otherwise, go to line 6 5. Hrblockfreefile 688. Hrblockfreefile 90 6. Hrblockfreefile Enter any amounts previously recovered tax free in years after 1986. Hrblockfreefile This is the amount shown on line 10 of your worksheet for last year 6. Hrblockfreefile 0 7. Hrblockfreefile Subtract line 6 from line 2 7. Hrblockfreefile 24,800 8. Hrblockfreefile Enter the smaller of line 5 or line 7 8. Hrblockfreefile 688. Hrblockfreefile 90 9. Hrblockfreefile Taxable amount for year. Hrblockfreefile Subtract line 8 from line 1. Hrblockfreefile Enter the result, but not less than zero. Hrblockfreefile Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. Hrblockfreefile If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. Hrblockfreefile If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. Hrblockfreefile If you are a retired public safety officer, see Distributions Used To Pay Insurance Premiums for Public Safety Officers in Part II before entering an amount on your tax return or Worksheet C, line 1 9. Hrblockfreefile $11,311. Hrblockfreefile 10 10. Hrblockfreefile Was your annuity starting date before 1987?   Yes. Hrblockfreefile Do not complete the rest of this worksheet. Hrblockfreefile    No. Hrblockfreefile Add lines 6 and 8. Hrblockfreefile This is the amount you have recovered tax free through 2013. Hrblockfreefile You will need this number if you need to fill out this worksheet next year 10. Hrblockfreefile 688. Hrblockfreefile 90 11. Hrblockfreefile Balance of cost to be recovered. Hrblockfreefile Subtract line 10 from line 2. Hrblockfreefile If zero, you will not have to complete this worksheet next year. Hrblockfreefile The payments you receive next year will generally be fully taxable 11. Hrblockfreefile $24,111. Hrblockfreefile 10 Table 1 for Line 3 Above    IF your age on your annuity starting date was   AND your annuity starting date was—     before November 19, 1996,  THEN enter on line 3 after November 18, 1996,  THEN enter on line 3   55 or under 300 360   56–60 260 310   61–65 240 260   66–70 170 210   71 or over 120 160  Table 2 for Line 3 Above    IF the annuitants' combined ages on your annuity starting date were   THEN enter on line 3         110 or under   410         111–120   360         121–130   310         131–140   260         141 or over   210       * A death benefit exclusion of up to $5,000 applied to certain benefits received by survivors of employees who died before August 21, 1996. Hrblockfreefile Reemployment after choosing the alternative annuity option. Hrblockfreefile If you chose this option when you retired and then you were reemployed by the Federal Government before retiring again, your Form CSA 1099R may show only the amount of your contributions to your retirement plan during your reemployment. Hrblockfreefile If the amount on the form does not include all your contributions, disregard it and use your total contributions to figure the taxable part of your annuity payments. Hrblockfreefile Annuity starting date before November 19, 1996. Hrblockfreefile   If your annuity starting date is before November 19, 1996, and you chose the alternative annuity option, the taxable and tax-free parts of your lump-sum payment and your annuity payments are figured using different rules. Hrblockfreefile Under those rules, you do not reduce your cost in the plan (Worksheet A, line 2) by the tax-free part of the lump-sum payment. Hrblockfreefile However, you must include that tax-free amount with other amounts previously recovered tax free (Worksheet A, line 6) when limiting your total exclusion to your total cost. Hrblockfreefile Federal Gift Tax If, through the exercise or nonexercise of an election or option, you provide an annuity for your beneficiary at or after your death, you have made a gift. Hrblockfreefile The gift may be taxable for gift tax purposes. Hrblockfreefile The value of the gift is equal to the value of the annuity. Hrblockfreefile Joint and survivor annuity. Hrblockfreefile   If the gift is an interest in a joint and survivor annuity where only you and your spouse can receive payments before the death of the last spouse to die, the gift generally will qualify for the unlimited marital deduction. Hrblockfreefile This will eliminate any gift tax liability with regard to that gift. Hrblockfreefile   If you provide survivor annuity benefits for someone other than your current spouse, such as your former spouse, the unlimited marital deduction will not apply. Hrblockfreefile This may result in a taxable gift. Hrblockfreefile More information. Hrblockfreefile   For information about the gift tax, see Publication 950, Introduction to Estate and Gift Taxes, and Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, and its instructions. Hrblockfreefile Retirement During the Past Year If you have recently retired, the following discussions covering annual leave, voluntary contributions, and community property may apply to you. Hrblockfreefile Annual leave. Hrblockfreefile   A payment for accrued annual leave received on retirement is a salary payment. Hrblockfreefile It is taxable as wages in the tax year you receive it. Hrblockfreefile Voluntary contributions. Hrblockfreefile   Voluntary contributions to the retirement fund are those made in addition to the regular contributions that were deducted from your salary. Hrblockfreefile They also include the regular contributions withheld from your salary after you have the years of service necessary for the maximum annuity allowed by law. Hrblockfreefile Voluntary contributions are not the same as employee contributions to the Thrift Savings Plan. Hrblockfreefile See Thrift Savings Plan , later. Hrblockfreefile Additional annuity benefit. Hrblockfreefile   If you choose to receive an additional annuity benefit from your voluntary contributions, it is treated separately from the annuity benefit that comes from the regular contributions deducted from your salary. Hrblockfreefile This separate treatment applies for figuring the amounts to be excluded from, and included in, gross income. Hrblockfreefile It does not matter that you receive only one monthly check covering both benefits. Hrblockfreefile Each year you will receive a Form CSA 1099R that will show how much of your total annuity received in the past year was from each type of benefit. Hrblockfreefile   Figure the taxable and tax-free parts of your additional monthly benefits from voluntary contributions using the rules that apply to regular CSRS and FERS annuities, as explained earlier. Hrblockfreefile Refund of voluntary contributions. Hrblockfreefile   If you choose to receive a refund of your voluntary contributions plus accrued interest, the interest is taxable to you in the tax year it is distributed unless you roll it over to a traditional IRA or another qualified retirement plan. Hrblockfreefile If you do not have OPM transfer the interest to a traditional IRA or other qualified retirement plan in a direct rollover, tax will be withheld at a 20% rate. Hrblockfreefile See Rollover Rules , later. Hrblockfreefile The interest does not qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. Hrblockfreefile It also may be subject to an additional 10% tax on early distributions if you separate from service before the calendar year in which you reach age 55. Hrblockfreefile For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. Hrblockfreefile Community property laws. Hrblockfreefile   State community property laws apply to your annuity. Hrblockfreefile These laws will affect your income tax only if you file a return separately from your spouse. Hrblockfreefile   Generally, the determination of whether your annuity is separate income (taxable to you) or community income (taxable to both you and your spouse) is based on your marital status and domicile when you were working. Hrblockfreefile Regardless of whether you are now living in a community property state or a noncommunity property state, your current annuity may be community income if it is based on services you performed while married and domiciled in a community property state. Hrblockfreefile   At any time, you have only one domicile even though you may have more than one home. Hrblockfreefile Your domicile is your fixed and permanent legal home that you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. Hrblockfreefile The question of your domicile is mainly a matter of your intentions as indicated by your actions. Hrblockfreefile   If your annuity is a mixture of community income and separate income, you must divide it between the two kinds of income. Hrblockfreefile The division is based on your periods of service and domicile in community and noncommunity property states while you were married. Hrblockfreefile   For more information, see Publication 555, Community Property. Hrblockfreefile Reemployment After Retirement If you retired from federal service and are later rehired by the Federal Government as an employee, you can continue to receive your annuity during reemployment. Hrblockfreefile The employing agency usually will pay you the difference between your salary for your period of reemployment and your annuity. Hrblockfreefile This amount is taxable as wages. Hrblockfreefile Your annuity will continue to be taxed just as it was before. Hrblockfreefile If you are still recovering your cost, you continue to do so. Hrblockfreefile If you have recovered your cost, the annuity you receive while you are reemployed generally is fully taxable. Hrblockfreefile Nonresident Aliens The following special rules apply to nonresident alien federal employees performing services outside the United States and to nonresident alien retirees and beneficiaries. Hrblockfreefile A nonresident alien is an individual who is not a citizen or a resident alien of the United States. Hrblockfreefile Special rule for figuring your total contributions. Hrblockfreefile   Your contributions to the retirement plan (your cost) also include the government's contributions to the plan to a certain extent. Hrblockfreefile You include government contributions that would not have been taxable to you at the time they were contributed if they had been paid directly to you. Hrblockfreefile For example, government contributions would not have been taxable to you if, at the time made, your services were performed outside the United States. Hrblockfreefile Thus, your cost is increased by these government contributions and the benefits that you, or your beneficiary, must include in income are reduced. Hrblockfreefile   This method of figuring your total contributions does not apply to any contributions the government made on your behalf after you became a citizen or a resident alien of the United States. Hrblockfreefile Limit on taxable amount. Hrblockfreefile   There is a limit on the taxable amount of payments received from the CSRS, the FERS, or the TSP by a nonresident alien retiree or nonresident alien beneficiary. Hrblockfreefile Figure this limited taxable amount by multiplying the otherwise taxable amount by a fraction. Hrblockfreefile The numerator of the fraction is the retiree's total U. Hrblockfreefile S. Hrblockfreefile Government basic pay, other than tax-exempt pay for services performed outside the United States. Hrblockfreefile The denominator is the retiree's total U. Hrblockfreefile S. Hrblockfreefile Government basic pay for all services. Hrblockfreefile    Basic pay includes regular pay plus any standby differential. Hrblockfreefile It does not include bonuses, overtime pay, certain retroactive pay, uniform or other allowances, or lump-sum leave payments. Hrblockfreefile   To figure the limited taxable amount of your CSRS or FERS annuity or your TSP distributions, use Worksheet C. Hrblockfreefile (For an annuity, first complete Worksheet A in this publication. Hrblockfreefile ) Worksheet C. Hrblockfreefile Limited Taxable Amount for Nonresident Alien 1. Hrblockfreefile Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Forms CSA 1099R or CSF 1099R) or TSP distributions (from Form 1099R) 1. Hrblockfreefile   2. Hrblockfreefile Enter the total U. Hrblockfreefile S. Hrblockfreefile Government basic pay other than tax-exempt pay for services performed outside the United States 2. Hrblockfreefile   3. Hrblockfreefile Enter the total U. Hrblockfreefile S. Hrblockfreefile Government basic pay for all services 3. Hrblockfreefile   4. Hrblockfreefile Divide line 2 by line 3 4. Hrblockfreefile   5. Hrblockfreefile Limited taxable amount. Hrblockfreefile Multiply line 1 by line 4. Hrblockfreefile Enter this amount on Form 1040NR, line 17b 5. Hrblockfreefile   Example 1. Hrblockfreefile You are a nonresident alien who performed all services for the U. Hrblockfreefile S. Hrblockfreefile Government abroad as a nonresident alien. Hrblockfreefile You retired and began to receive a monthly annuity of $200. Hrblockfreefile Your total basic pay for all services for the U. Hrblockfreefile S. Hrblockfreefile Government was $100,000. Hrblockfreefile All of your basic pay was tax exempt because it was not U. Hrblockfreefile S. Hrblockfreefile source income. Hrblockfreefile The taxable amount of your annuity using Worksheet A in this publication is $720. Hrblockfreefile You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows. Hrblockfreefile Worksheet C. Hrblockfreefile Limited Taxable Amount for Nonresident Alien — Example 1 1. Hrblockfreefile Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Forms CSA 1099R or CSF 1099R) or TSP distributions (from Form 1099R) 1. Hrblockfreefile $ 720 2. Hrblockfreefile Enter the total U. Hrblockfreefile S. Hrblockfreefile Government basic pay other than tax-exempt pay for services performed outside the United States 2. Hrblockfreefile 0 3. Hrblockfreefile Enter the total U. Hrblockfreefile S. Hrblockfreefile Government basic pay for all services 3. Hrblockfreefile 100,000 4. Hrblockfreefile Divide line 2 by line 3 4. Hrblockfreefile 0 5. Hrblockfreefile Limited taxable amount. Hrblockfreefile Multiply line 1 by line 4. Hrblockfreefile Enter this amount on Form 1040NR, line 17b 5. Hrblockfreefile 0 Example 2. Hrblockfreefile You are a nonresident alien who performed services for the U. Hrblockfreefile S. Hrblockfreefile Government as a nonresident alien both within the United States and abroad. Hrblockfreefile You retired and began to receive a monthly annuity of $240. Hrblockfreefile Your total basic pay for your services for the U. Hrblockfreefile S. Hrblockfreefile Government was $120,000; $40,000 was for work done in the United States and $80,000 was for your work done in a foreign country. Hrblockfreefile The part of your total basic pay for your work done in a foreign country was tax exempt because it was not U. Hrblockfreefile S. Hrblockfreefile source income. Hrblockfreefile The taxable amount of your annuity figured using Worksheet A in this publication is $1,980. Hrblockfreefile You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows. Hrblockfreefile Worksheet C. Hrblockfreefile Limited Taxable Amount for Nonresident Alien — Example 2 1. Hrblockfreefile Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Forms CSA 1099R or CSF 1099R) or TSP distributions (from Form 1099R) 1. Hrblockfreefile $ 1,980 2. Hrblockfreefile Enter the total U. Hrblockfreefile S. Hrblockfreefile Government basic pay other than tax-exempt pay for services performed outside the United States 2. Hrblockfreefile 40,000 3. Hrblockfreefile Enter the total U. Hrblockfreefile S. Hrblockfreefile Government basic pay for all services 3. Hrblockfreefile 120,000 4. Hrblockfreefile Divide line 2 by line 3 4. Hrblockfreefile . Hrblockfreefile 333 5. Hrblockfreefile Limited taxable amount. Hrblockfreefile Multiply line 1 by line 4. Hrblockfreefile Enter this amount on Form 1040NR, line 17b 5. Hrblockfreefile 659 Thrift Savings Plan Generally, all of the money in your TSP account is taxed as ordinary income when you receive it. Hrblockfreefile (However, see Roth TSP balance and Uniformed services TSP accounts, next. Hrblockfreefile ) This is because neither the contributions to your traditional TSP balance nor its earnings have been included previously in your taxable income. Hrblockfreefile The way that you withdraw your account balance determines when you must pay the tax. Hrblockfreefile Roth TSP balance. Hrblockfreefile   The TSP also offers a Roth TSP option, which allows you to make after-tax contributions into your TSP account. Hrblockfreefile This means Roth TSP contributions are included in your income. Hrblockfreefile The contribution limits are the same as the traditional TSP. Hrblockfreefile You can elect to have part or all of your TSP contributions designated as a Roth TSP. Hrblockfreefile Agency contributions will be part of your traditional TSP balance. Hrblockfreefile Also, you cannot roll over any portion of your traditional TSP into your Roth TSP. Hrblockfreefile   Qualified distributions from your Roth TSP are not included in income. Hrblockfreefile This applies to both your cost in the account and income earned on that account. Hrblockfreefile A qualified distribution is generally a distribution that is: Made after a 5-tax-year period of participation, and Made on or after the date you reach age 59½, made to a beneficiary or your estate on or after your death, or attributable to your being disabled. Hrblockfreefile   For more information, go to the TSP website, www. Hrblockfreefile tsp. Hrblockfreefile gov, or the TSP Service Office. Hrblockfreefile See Publication 575, Pension and Annuity Income, for more information about designated Roth accounts. Hrblockfreefile Uniformed services TSP accounts. Hrblockfreefile   If you have a uniformed services TSP account that includes contributions from combat zone pay, the distributions attributable to those contributions are tax exempt. Hrblockfreefile However, any earnings on those contributions to a traditional TSP balance are subject to tax when they are distributed. Hrblockfreefile See Roth TSP balance discussed previously to get more information about Roth contributions. Hrblockfreefile The statement you receive from the TSP will separately state the total amount of your distribution and the amount of your taxable distribution for the year. Hrblockfreefile You can get more information from the TSP website, www. Hrblockfreefile tsp. Hrblockfreefile gov, or the TSP Service Office. Hrblockfreefile Direct rollover by the TSP. Hrblockfreefile   If you ask the TSP to transfer any part of the money in your account, from traditional contributions and its earnings, to a traditional IRA or other qualified retirement plan, the tax on that part is deferred until you receive payments from the traditional IRA or other plan. Hrblockfreefile However, see the following Note for a discussion on direct rollovers by the TSP of Roth contributions and its earnings. Hrblockfreefile Also, see Rollover Rules , later. Hrblockfreefile Direct rollover by the TSP to a Roth IRA. Hrblockfreefile   If you ask the TSP to transfer any part of the money in your account, from traditional contributions and its earnings, to a Roth IRA, the amount transferred will be taxed in the current year. Hrblockfreefile However, see the following Note for a discussion on direct rollovers by the TSP of Roth contributions and its earnings. Hrblockfreefile Also, see Rollovers to Roth IRAs for more information, later. Hrblockfreefile Note. Hrblockfreefile A direct rollover of your Roth contributions and its earnings (if certain conditions are met, see Roth TSP balance , earlier) in your TSP account to a Roth 401(k), Roth 403(b), Roth 457(b), or Roth IRA are not subject to tax when they are transferred or when you receive payments from those accounts at a later date. Hrblockfreefile This is because you already paid tax on those contributions. Hrblockfreefile You cannot rollover Roth contributions and its earnings in your TSP account to a traditional IRA. Hrblockfreefile TSP annuity. Hrblockfreefile   If you ask the TSP to buy an annuity with the money in your account, from traditional contributions and its earnings, the annuity payments are taxed when you receive them. Hrblockfreefile The payments are not subject to the additional 10% tax on early distributions, even if you are under age 55 when they begin. Hrblockfreefile However, there is no tax on the annuity payments if the annuity is purchased using the money in your account from Roth contributions and its earnings if certain conditions are met. Hrblockfreefile See Roth TSP balance , earlier. Hrblockfreefile This is because you already paid tax on those contributions. Hrblockfreefile Cash withdrawals. Hrblockfreefile   If you withdraw any of the money in your TSP account, from traditional contributions and its earnings, it is generally taxed as ordinary income when you receive it unless you roll it over into a traditional IRA or other qualified plan. Hrblockfreefile (See Rollover Rules , later. Hrblockfreefile ) If you receive your entire TSP account balance in a single tax year, you may be able to use the 10-year tax option to figure your tax. Hrblockfreefile See Lump-Sum Distributions in Publication 575 for details. Hrblockfreefile However, there is no tax if you withdraw money in your TSP account from Roth contributions and its earnings if certain conditions are met. Hrblockfreefile See Roth TSP balance , earlier. Hrblockfreefile    To qualify for the 10-year tax option, the plan participant must have been born before January 2, 1936. Hrblockfreefile   If you receive a single payment or you choose to receive your account balance in monthly payments over a period of less than 10 years, the TSP generally must withhold 20% for federal income tax. Hrblockfreefile If you choose to receive your account balance in monthly payments over a period of 10 or more years or a period based on your life expectancy, the payments are subject to withholding as if you are married with three withholding allowances, unless you submit a withholding certificate. Hrblockfreefile See also Withholding from Thrift Savings Plan payments earlier under Tax Withholding and Estimated Tax in Part I. Hrblockfreefile However, there is no withholding requirement for amounts withdrawn from your TSP account that is from Roth contributions and its earnings, if certain conditions are met. Hrblockfreefile See Roth TSP balance , earlier, for a discussion of those conditions. Hrblockfreefile Tax on early distributions. Hrblockfreefile   Any money paid to you from your TSP account before you reach age 59½ may be subject to an additional 10% tax on early distributions. Hrblockfreefile However, this additional tax does not apply in certain situations, including any of the following. Hrblockfreefile You receive the distribution and separate from government service during or after the calendar year in which you reach age 55. Hrblockfreefile You choose to receive your account balance in monthly payments based on your life expectancy. Hrblockfreefile You are totally and permanently disabled. Hrblockfreefile You receive amounts from your Roth contributions since that represents a return of your cost (after-tax money). Hrblockfreefile The earnings may be subject to the 10% tax depending on whether you met certain conditions. Hrblockfreefile See Roth TSP balance , earlier. Hrblockfreefile   For more information, see Tax on Early Distributions in Publication 575. Hrblockfreefile Outstanding loan. Hrblockfreefile   If the TSP declares a distribution from your account because money you borrowed has not been repaid when you separate from government service, your account is reduced and the amount of the distribution (your unpaid loan balance and any unpaid interest), from traditional contributions and its earnings, is taxed in the year declared. Hrblockfreefile The distribution also may be subject to the additional 10% tax on early distributions. Hrblockfreefile However, the tax will be deferred if you make a rollover contribution to a traditional IRA or other qualified plan equal to the declared distribution amount. Hrblockfreefile See Rollover Rules , later. Hrblockfreefile   If you withdraw any money from your TSP account in that same year, the TSP must withhold income tax of 20% of the total of the declared distribution and the amount withdrawn. Hrblockfreefile However, no withholding is required for portions of the distribution that is from Roth contributions and its earnings, if certain conditions are met. Hrblockfreefile See Roth TSP balance , earlier. Hrblockfreefile More information. Hrblockfreefile   For more information about the TSP, see Summary of the Thrift Savings Plan, distributed to all federal employees. Hrblockfreefile Also, see Important Tax Information About Payments From Your TSP Account and Special Tax Withholding Rules for Thrift Savings Plan Payments to Nonresident Aliens, which are available from your agency personnel office or from the TSP by calling 1-TSP-YOU-FIRST (1-877-968-3778) and for participants who are deaf, hard of hearing, or have a speech disability, call 1-TSP-THRIFT5 (1-877-847-4385). Hrblockfreefile    The above documents are also available on the TSP website at www. Hrblockfreefile tsp. Hrblockfreefile gov. Hrblockfreefile Select “Forms & Publications. Hrblockfreefile ” Rollover Rules Generally, a rollover is a tax-free withdrawal of cash or other assets from one qualified retirement plan or traditional IRA and its reinvestment in another qualified retirement plan or traditional IRA. Hrblockfreefile You do not include the amount rolled over in your income, and you cannot take a deduction for it. Hrblockfreefile The amount rolled over is taxed later as the new program pays that amount to you. Hrblockfreefile If you roll over amounts into a traditional IRA, later distributions of these amounts from the traditional IRA do not qualify for the capital gain or the 10-year tax option. Hrblockfreefile However, capital gain treatment or the 10-year tax option will be restored if the traditional IRA contains only amounts rolled over from a qualified plan and these amounts are rolled over from the traditional IRA into a qualified retirement plan. Hrblockfreefile To qualify for the capital gain treatment or 10-year tax option, the plan participant must have been born before January 2, 1936. Hrblockfreefile You can also roll over a distribution from a qualified retirement plan into a Roth IRA. Hrblockfreefile Although the transfer of a distribution into a Roth IRA is considered a rollover for Roth IRA purposes, it is not a tax-free transfer unless you are rolling over amounts from Roth contributions and its earnings. Hrblockfreefile See Rollovers to Roth IRAs , later, for more information. Hrblockfreefile Qualified retirement plan. Hrblockfreefile   For this purpose, a qualified retirement plan generally is: A qualified employee plan, A qualified employee annuity, A tax-sheltered annuity plan (403(b) plan), or An eligible state or local government section 457 deferred compensation plan. Hrblockfreefile The CSRS, FERS, and TSP are considered qualified retirement plans. Hrblockfreefile Distributions eligible for rollover treatment. Hrblockfreefile   If you receive a refund of your CSRS or FERS contributions when you leave government service, you can roll over any interest you receive on the contributions. Hrblockfreefile You cannot roll over any part of your CSRS or FERS annuity payments. Hrblockfreefile   You can roll over a distribution of any part of your TSP account balance except: A distribution of your account balance that you choose to receive in monthly payments over: Your life expectancy, The joint life expectancies of you and your beneficiary, or A period of 10 years or more, A required minimum distribution generally beginning at age 70½, A declared distribution because of an unrepaid loan, if you have not separated from government service (see Outstanding loan under Thrift Savings Plan, earlier), or A hardship distribution. Hrblockfreefile   In addition, a distribution to your beneficiary generally is not treated as an eligible rollover distribution. Hrblockfreefile However, see Qualified domestic relations order (QDRO) and Rollovers by surviving spouse , and Rollovers by nonspouse beneficiary , later. Hrblockfreefile Direct rollover option. Hrblockfreefile   You can choose to have the OPM or TSP transfer any part of an eligible rollover distribution directly to another qualified retirement plan that accepts rollover distributions or to a traditional IRA or Roth IRA. Hrblockfreefile   There is an automatic rollover requirement for mandatory distributions. Hrblockfreefile A mandatory distribution is a distribution made without your consent and before you reach age 62 or normal retirement age, whichever is later. Hrblockfreefile The automatic rollover requirement applies if the distribution is more than $1,000 and is an eligible rollover distribution. Hrblockfreefile You can choose to have the distribution paid directly to you or rolled over directly to your traditional or Roth IRA or another qualified retirement plan. Hrblockfreefile If you do not make this choice, OPM will automatically roll over the distribution into an IRA of a designated trustee or issuer. Hrblockfreefile No tax withheld. Hrblockfreefile   If you choose the direct rollover option or have an automatic rollover, no tax will be withheld from any part of the distribution that is directly paid to the trustee of the other plan. Hrblockfreefile However, if the rollover is to a Roth IRA, you may want to choose to have tax withheld since any amount rolled over is generally included in income. Hrblockfreefile Any part of the eligible rollover distribution paid to you is subject to withholding at a 20% rate. Hrblockfreefile Direct roll over amounts from Roth contributions and its earnings do not have tax withheld because you already paid tax on those amounts. Hrblockfreefile Payment to you option. Hrblockfreefile   If an eligible rollover distribution is paid to you, the OPM or TSP must withhold 20% for income tax even if you plan to roll over the distribution to another qualified retirement plan, traditional or Roth IRA. Hrblockfreefile However, the full amount is treated as distributed to you even though you actually receive only 80%. Hrblockfreefile You generally must include in income any part (including the part withheld) that you do not roll over within 60 days to another qualified retirement plan or to a traditional IRA. Hrblockfreefile Rollovers to Roth IRAs are generally included in income. Hrblockfreefile Eligible rollover distributions that are from Roth contributions do not have tax withheld because you already paid tax on those amounts. Hrblockfreefile If you leave government service before the calendar year in which you reach age 55 and are under age 59½ when a distribution is paid to you, you may have to pay an additional 10% tax on any part, including any tax withheld, that you do not roll over. Hrblockfreefile However, distributions from Roth contributions will not be subject to the 10% additional tax because it is a return of your cost (after-tax money). Hrblockfreefile Earnings from those contributions may be subject to the 10% additional tax if certain conditions are not met. Hrblockfreefile See Roth TSP balance , earlier. Hrblockfreefile Also, see Tax on Early Distributions in Publication 575. Hrblockfreefile Exception to withholding. Hrblockfreefile   Withholding from an eligible rollover distribution paid to you is not required if the distributions for your tax year total less than $200. Hrblockfreefile Partial rollovers. Hrblockfreefile   A lump-sum distribution may qualify for capital gain treatment or the 10-year tax option if the plan participant was born before January 2, 1936. Hrblockfreefile See Lump-Sum Distributions in Publication 575. Hrblockfreefile However, if you roll over any part of the distribution, the part you keep does not qualify for this special tax treatment. Hrblockfreefile Rolling over more than amount received. Hrblockfreefile   If you want to roll over more of an eligible rollover distribution than the amount you received after income tax was withheld, you will have to add funds from some other source (such as your savings or borrowed amounts). Hrblockfreefile Example. Hrblockfreefile You left government service at age 53. Hrblockfreefile On February 1, 2013, you receive an eligible rollover distribution of $10,000 from you