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File tax 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. File tax Gross monthly rate. File tax Your cost. File tax Choosing a survivor annuity after retirement. File tax Canceling a survivor annuity after retirement. File tax Annuity starting date after 1986. File tax Annuity starting date before 1987. File tax 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. File tax 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. File tax The refund will include both regular and voluntary contributions you made to the fund, plus any interest payable. File tax If the refund includes only your contributions, none of the refund is taxable. File tax 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). File tax 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. File tax See Rollover Rules in Part II for information on how to make a rollover. File tax 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. File tax Therefore, many employees who withdraw their contributions under the CSRS do not get interest and do not owe any tax on their refund. File tax 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. File tax 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. File tax For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. File tax 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. File tax 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. File tax OPM will tell you how to make the choice. File tax The choice for no withholding remains in effect until you change it. File tax These withholding rules also apply to a disability annuity, whether received before or after minimum retirement age. File tax 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. File tax 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. File tax 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. File tax For more information, including exceptions to the penalty, see chapter 4 of Publication 505, Tax Withholding and Estimated Tax. File tax Form CSA 1099R. File tax   Form CSA 1099R is mailed to you by OPM each year. File tax It will show any tax you had withheld. File tax File a copy of Form CSA 1099R with your tax return if any federal income tax was withheld. File tax    You also can view and download your Form CSA 1099R by visiting the OPM website at  www. File tax servicesonline. File tax opm. File tax gov. File tax To log in, you will need your retirement CSA claim number and your personal identification number. File tax Choosing no withholding on payments outside the United States. File tax   The choice for no withholding generally cannot be made for annuity payments to be delivered outside the United States and its possessions. File tax   To choose no withholding if you are a U. File tax S. File tax citizen or resident alien, you must provide OPM with your home address in the United States or its possessions. File tax Otherwise, OPM has to withhold tax. File tax For example, OPM must withhold if you provide a U. File tax S. File tax 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. File tax S. File tax home address. File tax   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. File tax S. File tax citizen, a U. File tax S. File tax resident alien, or someone who left the United States to avoid tax. File tax But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. File tax For details, see Publication 519, U. File tax S. File tax Tax Guide for Aliens. File tax Withholding certificate. File tax   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. File tax The amount of tax withheld depends on your marital status, the number of withholding allowances, and any additional amount you designate to be withheld. File tax If you do not make either of these choices, OPM must withhold as if you were married with three withholding allowances. File tax 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. File tax C. File tax calling area must call 202-606-0500). File tax No special form is needed. File tax You will need your retirement CSA or CSF claim number, your social security number, and your personal identification number (PIN) when you call. File tax If you have TTY/TDD equipment, call 1-855–887–4957. File tax If you need a PIN, call OPM's Retirement Information Office. File tax You also can change the amount of withholding or stop withholding online by visiting the OPM website at www. File tax servicesonline. File tax opm. File tax gov. File tax You will need your retirement CSA or CSF claim number and your PIN. File tax Withholding from certain lump-sum payments. File tax   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. File tax Tax will be withheld at a 20% rate on the interest distributed. File tax However, tax will not be withheld if you have OPM transfer (roll over) the interest directly to your traditional IRA or other qualified plan. File tax If you have OPM transfer (roll over) the interest directly to a Roth IRA, the entire amount will be taxed in the current year. File tax Because no income tax will be withheld at the time of the transfer, you may want to increase your withholding or pay estimated taxes. File tax See Rollover Rules in Part II. File tax If you receive only your contributions, no tax will be withheld. File tax Withholding from Thrift Savings Plan payments. File tax   Generally, a distribution that you receive from the TSP is subject to federal income tax withholding. File tax 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. File tax  However, you usually can choose not to have tax withheld from TSP payments other than eligible rollover distributions. File tax 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. File tax   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. File tax The above document is also available in the “Forms & Publications” section of the TSP website at www. File tax tsp. File tax gov. File tax Estimated tax. File tax   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)). File tax The return must cover all 12 months. File tax   You do not have to pay estimated tax for 2014 if you were a U. File tax S. File tax citizen or resident alien for all of 2013 and you had no tax liability for the full 12-month 2013 tax year. File tax   Publication 505 contains information that you can use to help you figure your estimated tax payments. File tax 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. File tax The gross income filing requirements for the tax year are in the instructions to Form 1040, 1040A, or 1040EZ. File tax Children. File tax   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. File tax   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. File tax Form CSF 1099R. File tax   Form CSF 1099R will be mailed to you by January 31 after the end of each tax year. File tax It will show the total amount of the annuity you received in the past year. File tax It also should show, separately, the survivor annuity for a child or children. File tax Only the part that is each individual's survivor annuity should be shown on that individual's Form 1040 or 1040A. File tax   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. File tax    You also can view and download your Form CSF 1099R by visiting the OPM website at  www. File tax servicesonline. File tax opm. File tax gov. File tax To log in you will need your retirement CSF claim number and personal identification number. File tax    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. File tax C. File tax calling area must call 202-606-0500). File tax You will need your CSF claim number and your social security number when you call. File tax Taxable part of annuity. File tax   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. File tax 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. File tax Part II Rules for Retirees This part of the publication is for retirees who retired on nondisability retirement. File tax 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. File tax 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. File tax Annuity statement. File tax   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). File tax You will use this information to figure the tax-free recovery of your cost. File tax Annuity starting date. File tax   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. File tax 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. File tax Gross monthly rate. File tax   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. File tax Your cost. File tax   Your monthly annuity payment contains an amount on which you have previously paid income tax. File tax This amount represents part of your contributions to the retirement plan. File tax 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. File tax   The cost of your annuity is the total of your contributions to the retirement plan, as shown on your annuity statement from OPM. File tax If you elected the alternative annuity option, it includes any deemed deposits and any deemed redeposits that were added to your lump-sum credit. File tax (See Lump-sum credit under Alternative Annuity Option, later. File tax )   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. File tax You cannot claim an interest deduction for any interest payments. File tax You cannot treat these payments as voluntary contributions; they are considered regular employee contributions. File tax Recovering your cost tax free. File tax   How you figure the tax-free recovery of the cost of your CSRS or FERS annuity depends on your annuity starting date. File tax 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. File tax 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). File tax If your annuity starting date is after November 18, 1996, you must use the Simplified Method. File tax   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). File tax The tax-free part is a fixed dollar amount. File tax It remains the same, even if your annuity is increased. File tax Generally, this rule applies as long as you receive your annuity. File tax However, see Exclusion limit , later. File tax Choosing a survivor annuity after retirement. File tax    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. File tax   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. File tax To figure the new exclusion percentage, reduce your cost by the amount you previously recovered tax free. File tax Figure the expected return as of the date the reduced annuity begins. File tax For details on the General Rule, see Publication 939. File tax Canceling a survivor annuity after retirement. File tax   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. File tax The increased annuity does not change the cost recovery you figured at the annuity starting date. File tax The tax-free part of each annuity payment remains the same. File tax    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. File tax C. File tax calling area must call 202-606-0500). File tax Exclusion limit. File tax   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. File tax Annuity starting date after 1986. File tax   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. File tax Annuity payments you or your survivors receive after the total cost in the plan has been recovered are generally fully taxable. File tax Example. File tax Your annuity starting date is after 1986 and you exclude $100 a month under the Simplified Method. File tax If your cost is $12,000, the exclusion ends after 10 years (120 months). File tax Thereafter, your entire annuity is generally fully taxable. File tax Annuity starting date before 1987. File tax   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. File tax If you chose a joint and survivor annuity, your survivor can continue to take that same exclusion. File tax The total exclusion may be more than your cost. File tax Deduction of unrecovered cost. File tax   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. File tax 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). File tax If your annuity starting date is before July 2, 1986, no tax benefit is allowed for any unrecovered cost at death. File tax 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. File tax (OPM has figured the taxable amount of your annuity shown on your Form CSA 1099R using the Simplified Method. File tax ) 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. File tax The Simplified Method does not apply if your annuity starting date is before July 2, 1986. File tax 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. File tax This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. File tax 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. File tax Worksheet A. File tax   Use Worksheet A. File tax Simplified Method (near the end of this publication), to figure your taxable annuity. File tax Be sure to keep the completed worksheet. File tax It will help you figure your taxable amounts for later years. File tax 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. File tax However, you must use Worksheet A and Worksheet B in this publication if you chose the alternative annuity option, discussed later. File tax Line 2. File tax   See Your cost , earlier, for an explanation of your cost in the plan. File tax 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. File tax Line 3. File tax   The number you enter on line 3 is the appropriate number from Table 1 or 2 representing approximate life expectancies in months. File tax 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. File tax If your annuity starting date is before 1998, use Table 1. File tax Line 6. File tax   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. File tax 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. File tax Example. File tax Bill Smith retired from the Federal Government on March 31, 2013, under an annuity that will provide a survivor benefit for his wife, Kathy. File tax 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. File tax He must use the Simplified Method to figure the tax-free part of his annuity benefits. File tax Bill's monthly annuity benefit is $1,000. File tax He had contributed $31,000 to his retirement plan and had received no distributions before his annuity starting date. File tax At his annuity starting date, he was 65 and Kathy was 57. File tax Bill's completed Worksheet A is shown later. File tax 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). File tax Bill keeps a copy of the completed worksheet for his records. File tax It will help him (and Kathy, if she survives him) figure the taxable amount of the annuity in later years. File tax Bill's tax-free monthly amount is $100. File tax (See line 4 of the worksheet. File tax ) 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. File tax 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. File tax 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. File tax 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. File tax 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. File tax 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. File tax 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. File tax Figuring this percentage is complex and requires the use of actuarial tables. File tax For these tables and other information about using the General Rule, see Publication 939. File tax 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. File tax Under this rule, you excluded all the annuity payments from income until you fully recovered your cost. File tax After your cost was recovered, all payments became fully taxable. File tax You cannot use another rule to again exclude amounts from income. File tax The Three-Year Rule was repealed for retirees whose annuity starting date is after July 1, 1986. File tax Worksheet A. File tax Simplified Method for Bill Smith See the instructions in Part II of this publication under Simplified Method. File tax 1. File tax Enter the total pension or annuity payments received this year. File tax Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. File tax $ 8,000 2. File tax Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. File tax See Your cost in Part II, Rules for Retirees, earlier 2. File tax 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). File tax Otherwise, go to line 3. File tax   3. File tax Enter the appropriate number from Table 1 below. File tax 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. File tax 3. File tax 310 4. File tax Divide line 2 by the number on line 3 4. File tax 100 5. File tax Multiply line 4 by the number of months for which this year's payments were made. File tax If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. File tax Otherwise, go to line 6 5. File tax 800 6. File tax Enter any amounts previously recovered tax free in years after 1986. File tax This is the amount shown on line 10 of your worksheet for last year 6. File tax 0 7. File tax Subtract line 6 from line 2 7. File tax 31,000 8. File tax Enter the smaller of line 5 or line 7 8. File tax 800 9. File tax Taxable amount for year. File tax Subtract line 8 from line 1. File tax Enter the result, but not less than zero. File tax Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. File tax If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. File tax If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. File tax 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. File tax $7,200 10. File tax Was your annuity starting date before 1987?   Yes. File tax Do not complete the rest of this worksheet. File tax    No. File tax Add lines 6 and 8. File tax This is the amount you have recovered tax free through 2013. File tax You will need this number if you need to fill out this worksheet next year 10. File tax 800 11. File tax Balance of cost to be recovered. File tax Subtract line 10 from line 2. File tax If zero, you will not have to complete this worksheet next year. File tax The payments you receive next year will generally be fully taxable 11. File tax $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. File tax Alternative Annuity Option If you are eligible, you may choose an alternative form of annuity. File tax If you make this choice, you will receive a lump-sum payment equal to your contributions to the plan and a reduced monthly annuity. File tax You are eligible to make this choice if you meet all of the following requirements. File tax You are retiring, but not on disability. File tax You have a life-threatening illness or other critical medical condition. File tax You do not have a former spouse entitled to court ordered benefits based on your service. File tax 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. File tax Lump-Sum Payment The lump-sum payment you receive under the alternative annuity option generally has a tax-free part and a taxable part. File tax The tax-free part represents part of your cost. File tax The taxable part represents part of the earnings on your annuity contract. File tax 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. File tax Deemed deposits and redeposits, which are described later under Lump-sum credit , are taxable to you in the year of retirement. File tax Your taxable amount may therefore be more than the lump-sum payment you receive. File tax 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. File tax 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. File tax See Rollover Rules , later, for information on how to make a rollover. File tax OPM can make a direct rollover only up to the amount of the lump-sum payment. File tax Therefore, to defer tax on the full taxable amount if it is more than the payment, you must add funds from another source. File tax 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. File tax 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. File tax For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. File tax Worksheet B. File tax   Use Worksheet B. File tax Lump-Sum Payment (near the end of this publication), to figure the taxable part of your lump-sum payment. File tax Be sure to keep the completed worksheet for your records. File tax   To complete the worksheet, you will need to know the amount of your lump-sum credit and the present value of your annuity contract. File tax Lump-sum credit. File tax   Generally, this is the same amount as the lump-sum payment you receive (the total of your contributions to the retirement system). File tax 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. File tax Deemed deposits (including interest) are for federal employment during which no retirement contributions were taken out of your pay. File tax Deemed redeposits (including interest) are for any refunds of retirement contributions that you received and did not repay. File tax 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. File tax Present value of your annuity contract. File tax   The present value of your annuity contract is figured using actuarial tables provided by the IRS. File tax 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. File tax Internal Revenue Service Attn: Actuarial Group 2 TE/GE SE:T:EP:RA:T:A2 NCA-629 1111 Constitution Ave. File tax , NW Washington, DC 20224-0002 Example. File tax David Brown retired from the federal government in 2013, one month after his 55th birthday. File tax 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. File tax The present value of his annuity contract was $155,000. File tax The tax-free part and the taxable part of the lump-sum payment are figured using Worksheet B, as shown below. File tax 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. File tax See Reduced Annuity , later. File tax Worksheet B. File tax Lump-Sum Payment for David Brown See the instructions in Part II of this publication under Alternative Annuity Option . File tax  1. File tax Enter your lump-sum credit (your cost in the plan at the annuity starting date) 1. File tax $ 31,000 2. File tax Enter the present value of your annuity contract 2. File tax 155,000 3. File tax Divide line 1 by line 2 3. File tax . File tax 20 4. File tax Tax-free amount. File tax Multiply line 1 by line 3. File tax (Caution: Do not include this amount on line 6 of Worksheet A in this publication. File tax ) 4. File tax $6,200 5. File tax Taxable amount (net cost in the plan). File tax Subtract line 4 from line 1. File tax Include this amount in the total on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. File tax Also, enter this amount on line 2 of Worksheet A in this publication. File tax 5. File tax $24,800   Lump-sum payment in installments. File tax   If you choose the alternative annuity option, you usually will receive the lump-sum payment in two equal installments. File tax You will receive the first installment after you make the choice upon retirement. File tax The second installment will be paid to you, with interest, in the next calendar year. File tax (Exceptions to the installment rule are provided for cases of critical medical need. File tax )   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. File tax If the payment has a tax-free part, you must treat the taxable part as received first. File tax How to report. File tax   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. File tax 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. File tax    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. File tax 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. File tax These annuity payments each will have a tax-free and a taxable part. File tax To figure the tax-free part of each annuity payment, you must use the Simplified Method (Worksheet A). File tax For instructions on how to complete the worksheet, see Worksheet A under Simplified Method, earlier. File tax 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. File tax Enter as your net cost on line 2 the amount from Worksheet B, line 5. File tax 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. File tax Example. File tax The facts are the same as in the example for David Brown in the preceding discussion. File tax In addition, David received 10 annuity payments in 2013 of $1,200 each. File tax Using Worksheet A, he figures the taxable part of his annuity payments. File tax He completes line 2 by reducing his $31,000 cost by the $6,200 tax-free part of his lump-sum payment. File tax His entry on line 2 is his $24,800 net cost in the plan (the amount from Worksheet B, line 5). File tax He does not include the tax-free part of his lump-sum payment on Worksheet A, line 6. File tax David's filled-in Worksheet A is shown on the next page. File tax Worksheet A. File tax Simplified Method for David Brown See the instructions in Part II of this publication under Simplified Method . File tax 1. File tax Enter the total pension or annuity payments received this year. File tax Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. File tax $ 12,000 2. File tax Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. File tax See Your cost in Part II, Rules for Retirees, earlier 2. File tax 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). File tax Otherwise, go to line 3. File tax   3. File tax Enter the appropriate number from Table 1 below. File tax 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. File tax 3. File tax 360 4. File tax Divide line 2 by the number on line 3 4. File tax 68. File tax 89 5. File tax Multiply line 4 by the number of months for which this year's payments were made. File tax If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. File tax Otherwise, go to line 6 5. File tax 688. File tax 90 6. File tax Enter any amounts previously recovered tax free in years after 1986. File tax This is the amount shown on line 10 of your worksheet for last year 6. File tax 0 7. File tax Subtract line 6 from line 2 7. File tax 24,800 8. File tax Enter the smaller of line 5 or line 7 8. File tax 688. File tax 90 9. File tax Taxable amount for year. File tax Subtract line 8 from line 1. File tax Enter the result, but not less than zero. File tax Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. File tax If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. File tax If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. File tax 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. File tax $11,311. File tax 10 10. File tax Was your annuity starting date before 1987?   Yes. File tax Do not complete the rest of this worksheet. File tax    No. File tax Add lines 6 and 8. File tax This is the amount you have recovered tax free through 2013. File tax You will need this number if you need to fill out this worksheet next year 10. File tax 688. File tax 90 11. File tax Balance of cost to be recovered. File tax Subtract line 10 from line 2. File tax If zero, you will not have to complete this worksheet next year. File tax The payments you receive next year will generally be fully taxable 11. File tax $24,111. File tax 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. File tax Reemployment after choosing the alternative annuity option. File tax 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. File tax 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. File tax Annuity starting date before November 19, 1996. File tax   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. File tax 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. File tax 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. File tax 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. File tax The gift may be taxable for gift tax purposes. File tax The value of the gift is equal to the value of the annuity. File tax Joint and survivor annuity. File tax   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. File tax This will eliminate any gift tax liability with regard to that gift. File tax   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. File tax This may result in a taxable gift. File tax More information. File tax   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. File tax 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. File tax Annual leave. File tax   A payment for accrued annual leave received on retirement is a salary payment. File tax It is taxable as wages in the tax year you receive it. File tax Voluntary contributions. File tax   Voluntary contributions to the retirement fund are those made in addition to the regular contributions that were deducted from your salary. File tax 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. File tax Voluntary contributions are not the same as employee contributions to the Thrift Savings Plan. File tax See Thrift Savings Plan , later. File tax Additional annuity benefit. File tax   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. File tax This separate treatment applies for figuring the amounts to be excluded from, and included in, gross income. File tax It does not matter that you receive only one monthly check covering both benefits. File tax 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. File tax   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. File tax Refund of voluntary contributions. File tax   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. File tax 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. File tax See Rollover Rules , later. File tax The interest does not qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. File tax 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. File tax For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. File tax Community property laws. File tax   State community property laws apply to your annuity. File tax These laws will affect your income tax only if you file a return separately from your spouse. File tax   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. File tax 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. File tax   At any time, you have only one domicile even though you may have more than one home. File tax 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. File tax The question of your domicile is mainly a matter of your intentions as indicated by your actions. File tax   If your annuity is a mixture of community income and separate income, you must divide it between the two kinds of income. File tax The division is based on your periods of service and domicile in community and noncommunity property states while you were married. File tax   For more information, see Publication 555, Community Property. File tax 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. File tax The employing agency usually will pay you the difference between your salary for your period of reemployment and your annuity. File tax This amount is taxable as wages. File tax Your annuity will continue to be taxed just as it was before. File tax If you are still recovering your cost, you continue to do so. File tax If you have recovered your cost, the annuity you receive while you are reemployed generally is fully taxable. File tax 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. File tax A nonresident alien is an individual who is not a citizen or a resident alien of the United States. File tax Special rule for figuring your total contributions. File tax   Your contributions to the retirement plan (your cost) also include the government's contributions to the plan to a certain extent. File tax 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. File tax For example, government contributions would not have been taxable to you if, at the time made, your services were performed outside the United States. File tax Thus, your cost is increased by these government contributions and the benefits that you, or your beneficiary, must include in income are reduced. File tax   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. File tax Limit on taxable amount. File tax   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. File tax Figure this limited taxable amount by multiplying the otherwise taxable amount by a fraction. File tax The numerator of the fraction is the retiree's total U. File tax S. File tax Government basic pay, other than tax-exempt pay for services performed outside the United States. File tax The denominator is the retiree's total U. File tax S. File tax Government basic pay for all services. File tax    Basic pay includes regular pay plus any standby differential. File tax It does not include bonuses, overtime pay, certain retroactive pay, uniform or other allowances, or lump-sum leave payments. File tax   To figure the limited taxable amount of your CSRS or FERS annuity or your TSP distributions, use Worksheet C. File tax (For an annuity, first complete Worksheet A in this publication. File tax ) Worksheet C. File tax Limited Taxable Amount for Nonresident Alien 1. File tax 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. File tax   2. File tax Enter the total U. File tax S. File tax Government basic pay other than tax-exempt pay for services performed outside the United States 2. File tax   3. File tax Enter the total U. File tax S. File tax Government basic pay for all services 3. File tax   4. File tax Divide line 2 by line 3 4. File tax   5. File tax Limited taxable amount. File tax Multiply line 1 by line 4. File tax Enter this amount on Form 1040NR, line 17b 5. File tax   Example 1. File tax You are a nonresident alien who performed all services for the U. File tax S. File tax Government abroad as a nonresident alien. File tax You retired and began to receive a monthly annuity of $200. File tax Your total basic pay for all services for the U. File tax S. File tax Government was $100,000. File tax All of your basic pay was tax exempt because it was not U. File tax S. File tax source income. File tax The taxable amount of your annuity using Worksheet A in this publication is $720. File tax You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows. File tax Worksheet C. File tax Limited Taxable Amount for Nonresident Alien — Example 1 1. File tax 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. File tax $ 720 2. File tax Enter the total U. File tax S. File tax Government basic pay other than tax-exempt pay for services performed outside the United States 2. File tax 0 3. File tax Enter the total U. File tax S. File tax Government basic pay for all services 3. File tax 100,000 4. File tax Divide line 2 by line 3 4. File tax 0 5. File tax Limited taxable amount. File tax Multiply line 1 by line 4. File tax Enter this amount on Form 1040NR, line 17b 5. File tax 0 Example 2. File tax You are a nonresident alien who performed services for the U. File tax S. File tax Government as a nonresident alien both within the United States and abroad. File tax You retired and began to receive a monthly annuity of $240. File tax Your total basic pay for your services for the U. File tax S. File tax 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. File tax The part of your total basic pay for your work done in a foreign country was tax exempt because it was not U. File tax S. File tax source income. File tax The taxable amount of your annuity figured using Worksheet A in this publication is $1,980. File tax You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows. File tax Worksheet C. File tax Limited Taxable Amount for Nonresident Alien — Example 2 1. File tax 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. File tax $ 1,980 2. File tax Enter the total U. File tax S. File tax Government basic pay other than tax-exempt pay for services performed outside the United States 2. File tax 40,000 3. File tax Enter the total U. File tax S. File tax Government basic pay for all services 3. File tax 120,000 4. File tax Divide line 2 by line 3 4. File tax . File tax 333 5. File tax Limited taxable amount. File tax Multiply line 1 by line 4. File tax Enter this amount on Form 1040NR, line 17b 5. File tax 659 Thrift Savings Plan Generally, all of the money in your TSP account is taxed as ordinary income when you receive it. File tax (However, see Roth TSP balance and Uniformed services TSP accounts, next. File tax ) This is because neither the contributions to your traditional TSP balance nor its earnings have been included previously in your taxable income. File tax The way that you withdraw your account balance determines when you must pay the tax. File tax Roth TSP balance. File tax   The TSP also offers a Roth TSP option, which allows you to make after-tax contributions into your TSP account. File tax This means Roth TSP contributions are included in your income. File tax The contribution limits are the same as the traditional TSP. File tax You can elect to have part or all of your TSP contributions designated as a Roth TSP. File tax Agency contributions will be part of your traditional TSP balance. File tax Also, you cannot roll over any portion of your traditional TSP into your Roth TSP. File tax   Qualified distributions from your Roth TSP are not included in income. File tax This applies to both your cost in the account and income earned on that account. File tax 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. File tax   For more information, go to the TSP website, www. File tax tsp. File tax gov, or the TSP Service Office. File tax See Publication 575, Pension and Annuity Income, for more information about designated Roth accounts. File tax Uniformed services TSP accounts. File tax   If you have a uniformed services TSP account that includes contributions from combat zone pay, the distributions attributable to those contributions are tax exempt. File tax However, any earnings on those contributions to a traditional TSP balance are subject to tax when they are distributed. File tax See Roth TSP balance discussed previously to get more information about Roth contributions. File tax 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. File tax You can get more information from the TSP website, www. File tax tsp. File tax gov, or the TSP Service Office. File tax Direct rollover by the TSP. File tax   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. File tax However, see the following Note for a discussion on direct rollovers by the TSP of Roth contributions and its earnings. File tax Also, see Rollover Rules , later. File tax Direct rollover by the TSP to a Roth IRA. File tax   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. File tax However, see the following Note for a discussion on direct rollovers by the TSP of Roth contributions and its earnings. File tax Also, see Rollovers to Roth IRAs for more information, later. File tax Note. File tax 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. File tax This is because you already paid tax on those contributions. File tax You cannot rollover Roth contributions and its earnings in your TSP account to a traditional IRA. File tax TSP annuity. File tax   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. File tax The payments are not subject to the additional 10% tax on early distributions, even if you are under age 55 when they begin. File tax 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. File tax See Roth TSP balance , earlier. File tax This is because you already paid tax on those contributions. File tax Cash withdrawals. File tax   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. File tax (See Rollover Rules , later. File tax ) 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. File tax See Lump-Sum Distributions in Publication 575 for details. File tax However, there is no tax if you withdraw money in your TSP account from Roth contributions and its earnings if certain conditions are met. File tax See Roth TSP balance , earlier. File tax    To qualify for the 10-year tax option, the plan participant must have been born before January 2, 1936. File tax   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. File tax 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. File tax See also Withholding from Thrift Savings Plan payments earlier under Tax Withholding and Estimated Tax in Part I. File tax 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. File tax See Roth TSP balance , earlier, for a discussion of those conditions. File tax Tax on early distributions. File tax   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. File tax However, this additional tax does not apply in certain situations, including any of the following. File tax You receive the distribution and separate from government service during or after the calendar year in which you reach age 55. File tax You choose to receive your account balance in monthly payments based on your life expectancy. File tax You are totally and permanently disabled. File tax You receive amounts from your Roth contributions since that represents a return of your cost (after-tax money). File tax The earnings may be subject to the 10% tax depending on whether you met certain conditions. File tax See Roth TSP balance , earlier. File tax   For more information, see Tax on Early Distributions in Publication 575. File tax Outstanding loan. File tax   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. File tax The distribution also may be subject to the additional 10% tax on early distributions. File tax 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. File tax See Rollover Rules , later. File tax   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. File tax However, no withholding is required for portions of the distribution that is from Roth contributions and its earnings, if certain conditions are met. File tax See Roth TSP balance , earlier. File tax More information. File tax   For more information about the TSP, see Summary of the Thrift Savings Plan, distributed to all federal employees. File tax 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). File tax    The above documents are also available on the TSP website at www. File tax tsp. File tax gov. File tax Select “Forms & Publications. File tax ” 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. File tax You do not include the amount rolled over in your income, and you cannot take a deduction for it. File tax The amount rolled over is taxed later as the new program pays that amount to you. File tax 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. File tax 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. File tax To qualify for the capital gain treatment or 10-year tax option, the plan participant must have been born before January 2, 1936. File tax You can also roll over a distribution from a qualified retirement plan into a Roth IRA. File tax 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. File tax See Rollovers to Roth IRAs , later, for more information. File tax Qualified retirement plan. File tax   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. File tax The CSRS, FERS, and TSP are considered qualified retirement plans. File tax Distributions eligible for rollover treatment. File tax   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. File tax You cannot roll over any part of your CSRS or FERS annuity payments. File tax   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. File tax   In addition, a distribution to your beneficiary generally is not treated as an eligible rollover distribution. File tax However, see Qualified domestic relations order (QDRO) and Rollovers by surviving spouse , and Rollovers by nonspouse beneficiary , later. File tax Direct rollover option. File tax   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. File tax   There is an automatic rollover requirement for mandatory distributions. File tax A mandatory distribution is a distribution made without your consent and before you reach age 62 or normal retirement age, whichever is later. File tax The automatic rollover requirement applies if the distribution is more than $1,000 and is an eligible rollover distribution. File tax 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. File tax If you do not make this choice, OPM will automatically roll over the distribution into an IRA of a designated trustee or issuer. File tax No tax withheld. File tax   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. File tax 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. File tax Any part of the eligible rollover distribution paid to you is subject to withholding at a 20% rate. File tax Direct roll over amounts from Roth contributions and its earnings do not have tax withheld because you already paid tax on those amounts. File tax Payment to you option. File tax   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. File tax However, the full amount is treated as distributed to you even though you actually receive only 80%. File tax 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. File tax Rollovers to Roth IRAs are generally included in income. File tax Eligible rollover distributions that are from Roth contributions do not have tax withheld because you already paid tax on those amounts. File tax 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. File tax 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). File tax Earnings from those contributions may be subject to the 10% additional tax if certain conditions are not met. File tax See Roth TSP balance , earlier. File tax Also, see Tax on Early Distributions in Publication 575. File tax Exception to withholding. File tax   Withholding from an eligible rollover distribution paid to you is not required if the distributions for your tax year total less than $200. File tax Partial rollovers. File tax   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. File tax See Lump-Sum Distributions in Publication 575. File tax However, if you roll over any part of the distribution, the part you keep does not qualify for this special tax treatment. File tax Rolling over more than amount received. File tax   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). File tax Example. File tax You left government service at age 53. File tax On February 1, 2013, you receive an eligible rollover distribution of $10,000 from you
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File tax 35. File tax   Education Credits Table of Contents Introduction Useful Items - You may want to see: Who Can Claim an Education Credit Qualified Education ExpensesNo Double Benefit Allowed Adjustments to Qualified Education Expenses Introduction For 2013, there are two tax credits available to persons who pay expenses for higher (postsecondary) education. File tax They are: The American opportunity credit, and The lifetime learning credit. File tax The chapter will present an overview of these education credits. File tax To get the detailed information you will need to claim either of the credits, and for examples illustrating that information, see chapters 2 and 3 of Publication 970. File tax Can you claim more than one education credit this year?   For each student, you can choose for any year only one of the credits. File tax For example, if you choose to take the American opportunity credit for a child on your 2013 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2013. File tax   If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both. File tax   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity and the lifetime learning credits on a per-student, per-year basis. File tax This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. File tax Table 35-1. File tax Comparison of Education Credits Caution. File tax You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same student. File tax   American Opportunity Credit Lifetime Learning Credit Maximum credit Up to $2,500 credit per eligible student Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly;  $90,000 if single, head of household, or qualifying widow(er) $127,000 if married filing jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable Credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) the Hope credit was claimed) Available for an unlimited number of years Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period beginning during the tax year Available for one or more courses Felony drug conviction At the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Felony drug convictions do not make the student ineligible Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Differences between the American opportunity and lifetime learning credits. File tax   There are several differences between these two credits. File tax These differences are summarized in Table 35-1, later. File tax Useful Items - You may want to see: Publication 970 Tax Benefits for Education Form (and Instructions) 8863 Education Credits (American Opportunity and Lifetime Learning Credits) Who Can Claim an Education Credit You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. File tax The credits are based on the amount of qualified education expenses paid for the student in 2013 for academic periods beginning in 2013 and in the first 3 months of 2014. File tax For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 education credit(s). File tax Academic period. File tax   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. File tax In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. File tax Eligible educational institution. File tax   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. File tax S. File tax Department of Education. File tax It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. File tax The educational institution should be able to tell you if it is an eligible educational institution. File tax   Certain educational institutions located outside the United States also participate in the U. File tax S. File tax Department of Education's Federal Student Aid (FSA) programs. File tax Who can claim a dependent's expenses. File tax   If an exemption is allowed as a deduction for any person who claims the student as a dependent, all qualified education expenses of the student are treated as having been paid by that person. File tax Therefore, only that person can claim an education credit for the student. File tax If a student is not claimed as a dependent on another person's tax return, only the student can claim a credit. File tax Expenses paid by a third party. File tax   Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. File tax However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. File tax Therefore, you are treated as having paid expenses that were paid by the third party. File tax For more information and an example see Who Can Claim a Dependent's Expenses in Pub. File tax 970, chapter 2 or 3. File tax Who cannot claim a credit. File tax   You cannot take an education credit if any of the following apply. File tax You are claimed as a dependent on another person's tax return, such as your parent's return. File tax Your filing status is married filing separately. File tax You (or your spouse) were a nonresident alien for any part of 2013 and did not elect to be treated as a resident alien for tax purposes. File tax Your MAGI is one of the following. File tax American opportunity credit: $180,000 or more if married filing jointly, or $90,000 or more if single, head of household, or qualifying widow(er). File tax Lifetime learning credit: $127,000 or more if married filing jointly, or $63,000 or more if single, head of household, or qualifying widow(er) . File tax   Generally, your MAGI is the amount on your Form 1040, line 38, or Form 1040A, line 22. File tax However, if you are filing Form 2555, Form 2555–EZ, or Form 4563, or are excluding income from Puerto RIco, add to the amount on your Form 1040, line 38, or Form 1040A, line 22, the amount of income you excluded. File tax For details, see Pub. File tax 970. File tax    Figure 35-A may be helpful in determining if you can claim an education credit on your tax return. File tax The American opportunity credit will always be greater than or equal to the lifetime learning credit for any student who is eligible for both credits. File tax However, if any of the conditions for the American opportunity credit, listed in Table 35-1 earlier, are not met for any student, you cannot take the American opportunity credit for that student. File tax You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. File tax See Pub. File tax 970 for information on other education benefits. File tax Qualified Education Expenses Generally, qualified education expenses are amounts paid in 2013 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. File tax It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds. File tax For course-related books, supplies, and equipment, only certain expenses qualify. File tax American opportunity credit: Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. File tax Lifetime learning credit: Qualified education expenses include amounts for books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance. File tax Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance. File tax However, fees for personal expenses (described below) are never qualified education expenses. File tax Qualified education expenses for either credit do not include amounts paid for: Personal expenses. File tax This means room and board, insurance, medical expenses (including student health fees), transportation, and other similar personal, living, or family expenses. File tax Any course or other education involving sports, games, or hobbies, or any noncredit course, unless such course or other education is part of the student's degree program or (for the lifetime learning credit only) helps the student acquire or improve job skills. File tax You should receive Form 1098–T, Tuition Statement, from the institution reporting either payments received in 2013 (box 1) or amounts billed in 2013 (box 2). File tax However, the amount in box 1 or 2 of Form 1098–T may be different from the amount you paid (or are treated as having paid). File tax In completing Form 8863, use only the amounts you actually paid (plus any amounts you are treated as having paid) in 2013, reduced as necessary, as described in Adjustments to Qualified Education Expenses , later. File tax Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. File tax Qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. File tax If you or the student takes a deduction for higher education expenses, such as on Schedule A or C (Form 1040), you cannot use those expenses in your qualified education expenses when figuring your education credits. File tax Qualified education expenses for any academic period must be reduced by any tax-free educational assistance allocable to that academic period. File tax See Adjustments to Qualified Education Expenses, later. File tax Prepaid Expenses. File tax   Qualified education expenses paid in 2013 for an academic period that begins in the first 3 months of 2014 can be used in figuring an education credit for 2013 only. File tax See Academic period , earlier. File tax For example, if you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). File tax    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). File tax Paid with borrowed funds. File tax   You can claim an education credit for qualified education expenses paid with the proceeds of a loan. File tax Use the expenses to figure the credit for the year in which the expenses are paid, not the year in which the loan is repaid. File tax Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. File tax Student withdraws from class(es). File tax   You can claim an education credit for qualified education expenses not refunded when a student withdraws. File tax No Double Benefit Allowed You cannot do any of the following. File tax Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education credit based on those same expenses. File tax Claim more than one education credit based on the same qualified education expenses. File tax Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). File tax Claim an education credit based on qualified education expenses paid with educational assistance, such as a tax-free scholarship, grant, or employer-provided educational assistance. File tax See Adjustments to Qualified Education Expenses, next. File tax Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid in 2013 by or on behalf of that student under the following rules. File tax The result is the amount of adjusted qualified education expenses for each student. File tax Tax-free educational assistance. File tax   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. File tax See Academic period , earlier. File tax      Tax-free educational assistance includes:    Tax-free parts of scholarships and fellowships (see chapter 12 of this publication and chapter 1 of Pub. File tax 970), The tax-free part of Pell grants (see chapter 1 of Pub. File tax 970), The tax-free part of employer-provided educational assistance (see Pub. File tax 970), Veterans' educational assistance (see chapter 1 of Pub. File tax 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. File tax Generally, any scholarship or fellowship is treated as tax-free educational assistance. File tax However, a scholarship or fellowship is not treated as tax-free educational assistance to the extent the student includes it in gross income (if the student is required to file a tax return) for the year the scholarship or fellowship is received and either: The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. File tax 970, chapter 1; or The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. File tax 970, chapter 1. File tax You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year received. File tax For details, see Adjustments of Qualified Education Expenses, in chapters 2 and 3 of Pub. File tax 970. File tax Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. File tax This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). File tax If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. File tax If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. File tax Refunds. File tax   A refund of qualified education expenses may reduce qualified education expenses for the tax year or may require you to repay (recapture) the credit that you claimed in an earlier year. File tax Some tax-free educational assistance received after 2013 may be treated as a refund. File tax See Tax-free educational assistance, earlier. File tax Refunds received in 2013. File tax   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses paid in 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. File tax Refunds received after 2013 but before your income tax return is filed. File tax   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received before you file your 2013 income tax return, reduce the amount of qualified education expenses for 2013 by the amount of the refund. File tax Refunds received after 2013 and after your income tax return is filed. File tax   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received after you file your 2013 income tax return, you may need to repay some or all of the credit that you claimed. File tax See Credit recapture, next. File tax Credit recapture. File tax    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. File tax You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. File tax You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). File tax Include that amount as an additional tax for the year the refund or tax-free assistance was received. File tax Example. File tax    You paid $8,000 tuition and fees in December 2013 for your child's Spring semester beginning in January 2014. File tax You filed your 2013 tax return on February 3, 2014, and claimed a lifetime learning credit of $1,600 ($8,000 qualified education expense paid x . File tax 20). File tax You claimed no other tax credits. File tax After you filed your return, your child withdrew from two courses and you received a refund of $1,400. File tax You must refigure your 2013 lifetime learning credit using $6,600 ($8,000 qualified education expenses − $1,400 refund). File tax The refigured credit is $1,320 and your tax liability increased by $280. File tax You must include the difference of $280 ($1,600 credit originally claimed − $1,320 refigured credit) as additional tax on your 2014 income tax return. File tax See the instructions for your 2014 income tax return to determine where to include this tax. File tax If you also pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. File tax Amounts that do not reduce qualified education expenses. File tax   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. File tax   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. File tax The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Chapter 1 of Pub. File tax 970. File tax The use of the money is not restricted. File tax   For examples, see chapter 2 in Pub. File tax 970. File tax Figure 35-A. File tax Can You Claim an Education Credit for 2013? This image is too large to be displayed in the current screen. File tax Please click the link to view the image. File tax Figure 35-A. File tax Can You Claim an Education Credit for 2013? 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