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Free tax online 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. Free tax online Gross monthly rate. Free tax online Your cost. Free tax online Choosing a survivor annuity after retirement. Free tax online Canceling a survivor annuity after retirement. Free tax online Annuity starting date after 1986. Free tax online Annuity starting date before 1987. Free tax online 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. Free tax online 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. Free tax online The refund will include both regular and voluntary contributions you made to the fund, plus any interest payable. Free tax online If the refund includes only your contributions, none of the refund is taxable. Free tax online 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). Free tax online 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. Free tax online See Rollover Rules in Part II for information on how to make a rollover. Free tax online 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. Free tax online Therefore, many employees who withdraw their contributions under the CSRS do not get interest and do not owe any tax on their refund. Free tax online 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. Free tax online 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. Free tax online For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. Free tax online 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. Free tax online 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. Free tax online OPM will tell you how to make the choice. Free tax online The choice for no withholding remains in effect until you change it. Free tax online These withholding rules also apply to a disability annuity, whether received before or after minimum retirement age. Free tax online 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. Free tax online 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. Free tax online 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. Free tax online For more information, including exceptions to the penalty, see chapter 4 of Publication 505, Tax Withholding and Estimated Tax. Free tax online Form CSA 1099R. Free tax online   Form CSA 1099R is mailed to you by OPM each year. Free tax online It will show any tax you had withheld. Free tax online File a copy of Form CSA 1099R with your tax return if any federal income tax was withheld. Free tax online    You also can view and download your Form CSA 1099R by visiting the OPM website at  www. Free tax online servicesonline. Free tax online opm. Free tax online gov. Free tax online To log in, you will need your retirement CSA claim number and your personal identification number. Free tax online Choosing no withholding on payments outside the United States. Free tax online   The choice for no withholding generally cannot be made for annuity payments to be delivered outside the United States and its possessions. Free tax online   To choose no withholding if you are a U. Free tax online S. Free tax online citizen or resident alien, you must provide OPM with your home address in the United States or its possessions. Free tax online Otherwise, OPM has to withhold tax. Free tax online For example, OPM must withhold if you provide a U. Free tax online S. Free tax online 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. Free tax online S. Free tax online home address. Free tax online   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. Free tax online S. Free tax online citizen, a U. Free tax online S. Free tax online resident alien, or someone who left the United States to avoid tax. Free tax online But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. Free tax online For details, see Publication 519, U. Free tax online S. Free tax online Tax Guide for Aliens. Free tax online Withholding certificate. Free tax online   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. Free tax online The amount of tax withheld depends on your marital status, the number of withholding allowances, and any additional amount you designate to be withheld. Free tax online If you do not make either of these choices, OPM must withhold as if you were married with three withholding allowances. Free tax online 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. Free tax online C. Free tax online calling area must call 202-606-0500). Free tax online No special form is needed. Free tax online You will need your retirement CSA or CSF claim number, your social security number, and your personal identification number (PIN) when you call. Free tax online If you have TTY/TDD equipment, call 1-855–887–4957. Free tax online If you need a PIN, call OPM's Retirement Information Office. Free tax online You also can change the amount of withholding or stop withholding online by visiting the OPM website at www. Free tax online servicesonline. Free tax online opm. Free tax online gov. Free tax online You will need your retirement CSA or CSF claim number and your PIN. Free tax online Withholding from certain lump-sum payments. Free tax online   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. Free tax online Tax will be withheld at a 20% rate on the interest distributed. Free tax online However, tax will not be withheld if you have OPM transfer (roll over) the interest directly to your traditional IRA or other qualified plan. Free tax online If you have OPM transfer (roll over) the interest directly to a Roth IRA, the entire amount will be taxed in the current year. Free tax online Because no income tax will be withheld at the time of the transfer, you may want to increase your withholding or pay estimated taxes. Free tax online See Rollover Rules in Part II. Free tax online If you receive only your contributions, no tax will be withheld. Free tax online Withholding from Thrift Savings Plan payments. Free tax online   Generally, a distribution that you receive from the TSP is subject to federal income tax withholding. Free tax online 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. Free tax online  However, you usually can choose not to have tax withheld from TSP payments other than eligible rollover distributions. Free tax online 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. Free tax online   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. Free tax online The above document is also available in the “Forms & Publications” section of the TSP website at www. Free tax online tsp. Free tax online gov. Free tax online Estimated tax. Free tax online   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)). Free tax online The return must cover all 12 months. Free tax online   You do not have to pay estimated tax for 2014 if you were a U. Free tax online S. Free tax online citizen or resident alien for all of 2013 and you had no tax liability for the full 12-month 2013 tax year. Free tax online   Publication 505 contains information that you can use to help you figure your estimated tax payments. Free tax online 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. Free tax online The gross income filing requirements for the tax year are in the instructions to Form 1040, 1040A, or 1040EZ. Free tax online Children. Free tax online   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. Free tax online   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. Free tax online Form CSF 1099R. Free tax online   Form CSF 1099R will be mailed to you by January 31 after the end of each tax year. Free tax online It will show the total amount of the annuity you received in the past year. Free tax online It also should show, separately, the survivor annuity for a child or children. Free tax online Only the part that is each individual's survivor annuity should be shown on that individual's Form 1040 or 1040A. Free tax online   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. Free tax online    You also can view and download your Form CSF 1099R by visiting the OPM website at  www. Free tax online servicesonline. Free tax online opm. Free tax online gov. Free tax online To log in you will need your retirement CSF claim number and personal identification number. Free tax online    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. Free tax online C. Free tax online calling area must call 202-606-0500). Free tax online You will need your CSF claim number and your social security number when you call. Free tax online Taxable part of annuity. Free tax online   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. Free tax online 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. Free tax online Part II Rules for Retirees This part of the publication is for retirees who retired on nondisability retirement. Free tax online 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. Free tax online 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. Free tax online Annuity statement. Free tax online   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). Free tax online You will use this information to figure the tax-free recovery of your cost. Free tax online Annuity starting date. Free tax online   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. Free tax online 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. Free tax online Gross monthly rate. Free tax online   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. Free tax online Your cost. Free tax online   Your monthly annuity payment contains an amount on which you have previously paid income tax. Free tax online This amount represents part of your contributions to the retirement plan. Free tax online 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. Free tax online   The cost of your annuity is the total of your contributions to the retirement plan, as shown on your annuity statement from OPM. Free tax online If you elected the alternative annuity option, it includes any deemed deposits and any deemed redeposits that were added to your lump-sum credit. Free tax online (See Lump-sum credit under Alternative Annuity Option, later. Free tax online )   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. Free tax online You cannot claim an interest deduction for any interest payments. Free tax online You cannot treat these payments as voluntary contributions; they are considered regular employee contributions. Free tax online Recovering your cost tax free. Free tax online   How you figure the tax-free recovery of the cost of your CSRS or FERS annuity depends on your annuity starting date. Free tax online 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. Free tax online 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). Free tax online If your annuity starting date is after November 18, 1996, you must use the Simplified Method. Free tax online   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). Free tax online The tax-free part is a fixed dollar amount. Free tax online It remains the same, even if your annuity is increased. Free tax online Generally, this rule applies as long as you receive your annuity. Free tax online However, see Exclusion limit , later. Free tax online Choosing a survivor annuity after retirement. Free tax online    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. Free tax online   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. Free tax online To figure the new exclusion percentage, reduce your cost by the amount you previously recovered tax free. Free tax online Figure the expected return as of the date the reduced annuity begins. Free tax online For details on the General Rule, see Publication 939. Free tax online Canceling a survivor annuity after retirement. Free tax online   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. Free tax online The increased annuity does not change the cost recovery you figured at the annuity starting date. Free tax online The tax-free part of each annuity payment remains the same. Free tax online    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. Free tax online C. Free tax online calling area must call 202-606-0500). Free tax online Exclusion limit. Free tax online   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. Free tax online Annuity starting date after 1986. Free tax online   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. Free tax online Annuity payments you or your survivors receive after the total cost in the plan has been recovered are generally fully taxable. Free tax online Example. Free tax online Your annuity starting date is after 1986 and you exclude $100 a month under the Simplified Method. Free tax online If your cost is $12,000, the exclusion ends after 10 years (120 months). Free tax online Thereafter, your entire annuity is generally fully taxable. Free tax online Annuity starting date before 1987. Free tax online   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. Free tax online If you chose a joint and survivor annuity, your survivor can continue to take that same exclusion. Free tax online The total exclusion may be more than your cost. Free tax online Deduction of unrecovered cost. Free tax online   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. Free tax online 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). Free tax online If your annuity starting date is before July 2, 1986, no tax benefit is allowed for any unrecovered cost at death. Free tax online 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. Free tax online (OPM has figured the taxable amount of your annuity shown on your Form CSA 1099R using the Simplified Method. Free tax online ) 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. Free tax online The Simplified Method does not apply if your annuity starting date is before July 2, 1986. Free tax online 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. Free tax online This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Free tax online 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. Free tax online Worksheet A. Free tax online   Use Worksheet A. Free tax online Simplified Method (near the end of this publication), to figure your taxable annuity. Free tax online Be sure to keep the completed worksheet. Free tax online It will help you figure your taxable amounts for later years. Free tax online 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. Free tax online However, you must use Worksheet A and Worksheet B in this publication if you chose the alternative annuity option, discussed later. Free tax online Line 2. Free tax online   See Your cost , earlier, for an explanation of your cost in the plan. Free tax online 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. Free tax online Line 3. Free tax online   The number you enter on line 3 is the appropriate number from Table 1 or 2 representing approximate life expectancies in months. Free tax online 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. Free tax online If your annuity starting date is before 1998, use Table 1. Free tax online Line 6. Free tax online   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. Free tax online 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. Free tax online Example. Free tax online Bill Smith retired from the Federal Government on March 31, 2013, under an annuity that will provide a survivor benefit for his wife, Kathy. Free tax online 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. Free tax online He must use the Simplified Method to figure the tax-free part of his annuity benefits. Free tax online Bill's monthly annuity benefit is $1,000. Free tax online He had contributed $31,000 to his retirement plan and had received no distributions before his annuity starting date. Free tax online At his annuity starting date, he was 65 and Kathy was 57. Free tax online Bill's completed Worksheet A is shown later. Free tax online 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). Free tax online Bill keeps a copy of the completed worksheet for his records. Free tax online It will help him (and Kathy, if she survives him) figure the taxable amount of the annuity in later years. Free tax online Bill's tax-free monthly amount is $100. Free tax online (See line 4 of the worksheet. Free tax online ) 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. Free tax online 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. Free tax online 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. Free tax online 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. Free tax online 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. Free tax online 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. Free tax online 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. Free tax online Figuring this percentage is complex and requires the use of actuarial tables. Free tax online For these tables and other information about using the General Rule, see Publication 939. Free tax online 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. Free tax online Under this rule, you excluded all the annuity payments from income until you fully recovered your cost. Free tax online After your cost was recovered, all payments became fully taxable. Free tax online You cannot use another rule to again exclude amounts from income. Free tax online The Three-Year Rule was repealed for retirees whose annuity starting date is after July 1, 1986. Free tax online Worksheet A. Free tax online Simplified Method for Bill Smith See the instructions in Part II of this publication under Simplified Method. Free tax online 1. Free tax online Enter the total pension or annuity payments received this year. Free tax online Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Free tax online $ 8,000 2. Free tax online Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. Free tax online See Your cost in Part II, Rules for Retirees, earlier 2. Free tax online 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). Free tax online Otherwise, go to line 3. Free tax online   3. Free tax online Enter the appropriate number from Table 1 below. Free tax online 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. Free tax online 3. Free tax online 310 4. Free tax online Divide line 2 by the number on line 3 4. Free tax online 100 5. Free tax online Multiply line 4 by the number of months for which this year's payments were made. Free tax online If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Free tax online Otherwise, go to line 6 5. Free tax online 800 6. Free tax online Enter any amounts previously recovered tax free in years after 1986. Free tax online This is the amount shown on line 10 of your worksheet for last year 6. Free tax online 0 7. Free tax online Subtract line 6 from line 2 7. Free tax online 31,000 8. Free tax online Enter the smaller of line 5 or line 7 8. Free tax online 800 9. Free tax online Taxable amount for year. Free tax online Subtract line 8 from line 1. Free tax online Enter the result, but not less than zero. Free tax online Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. Free tax online If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. Free tax online If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. Free tax online 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. Free tax online $7,200 10. Free tax online Was your annuity starting date before 1987?   Yes. Free tax online Do not complete the rest of this worksheet. Free tax online    No. Free tax online Add lines 6 and 8. Free tax online This is the amount you have recovered tax free through 2013. Free tax online You will need this number if you need to fill out this worksheet next year 10. Free tax online 800 11. Free tax online Balance of cost to be recovered. Free tax online Subtract line 10 from line 2. Free tax online If zero, you will not have to complete this worksheet next year. Free tax online The payments you receive next year will generally be fully taxable 11. Free tax online $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. Free tax online Alternative Annuity Option If you are eligible, you may choose an alternative form of annuity. Free tax online If you make this choice, you will receive a lump-sum payment equal to your contributions to the plan and a reduced monthly annuity. Free tax online You are eligible to make this choice if you meet all of the following requirements. Free tax online You are retiring, but not on disability. Free tax online You have a life-threatening illness or other critical medical condition. Free tax online You do not have a former spouse entitled to court ordered benefits based on your service. Free tax online 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. Free tax online Lump-Sum Payment The lump-sum payment you receive under the alternative annuity option generally has a tax-free part and a taxable part. Free tax online The tax-free part represents part of your cost. Free tax online The taxable part represents part of the earnings on your annuity contract. Free tax online 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. Free tax online Deemed deposits and redeposits, which are described later under Lump-sum credit , are taxable to you in the year of retirement. Free tax online Your taxable amount may therefore be more than the lump-sum payment you receive. Free tax online 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. Free tax online 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. Free tax online See Rollover Rules , later, for information on how to make a rollover. Free tax online OPM can make a direct rollover only up to the amount of the lump-sum payment. Free tax online Therefore, to defer tax on the full taxable amount if it is more than the payment, you must add funds from another source. Free tax online 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. Free tax online 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. Free tax online For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. Free tax online Worksheet B. Free tax online   Use Worksheet B. Free tax online Lump-Sum Payment (near the end of this publication), to figure the taxable part of your lump-sum payment. Free tax online Be sure to keep the completed worksheet for your records. Free tax online   To complete the worksheet, you will need to know the amount of your lump-sum credit and the present value of your annuity contract. Free tax online Lump-sum credit. Free tax online   Generally, this is the same amount as the lump-sum payment you receive (the total of your contributions to the retirement system). Free tax online 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. Free tax online Deemed deposits (including interest) are for federal employment during which no retirement contributions were taken out of your pay. Free tax online Deemed redeposits (including interest) are for any refunds of retirement contributions that you received and did not repay. Free tax online 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. Free tax online Present value of your annuity contract. Free tax online   The present value of your annuity contract is figured using actuarial tables provided by the IRS. Free tax online 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. Free tax online Internal Revenue Service Attn: Actuarial Group 2 TE/GE SE:T:EP:RA:T:A2 NCA-629 1111 Constitution Ave. Free tax online , NW Washington, DC 20224-0002 Example. Free tax online David Brown retired from the federal government in 2013, one month after his 55th birthday. Free tax online 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. Free tax online The present value of his annuity contract was $155,000. Free tax online The tax-free part and the taxable part of the lump-sum payment are figured using Worksheet B, as shown below. Free tax online 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. Free tax online See Reduced Annuity , later. Free tax online Worksheet B. Free tax online Lump-Sum Payment for David Brown See the instructions in Part II of this publication under Alternative Annuity Option . Free tax online  1. Free tax online Enter your lump-sum credit (your cost in the plan at the annuity starting date) 1. Free tax online $ 31,000 2. Free tax online Enter the present value of your annuity contract 2. Free tax online 155,000 3. Free tax online Divide line 1 by line 2 3. Free tax online . Free tax online 20 4. Free tax online Tax-free amount. Free tax online Multiply line 1 by line 3. Free tax online (Caution: Do not include this amount on line 6 of Worksheet A in this publication. Free tax online ) 4. Free tax online $6,200 5. Free tax online Taxable amount (net cost in the plan). Free tax online Subtract line 4 from line 1. Free tax online Include this amount in the total on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Free tax online Also, enter this amount on line 2 of Worksheet A in this publication. Free tax online 5. Free tax online $24,800   Lump-sum payment in installments. Free tax online   If you choose the alternative annuity option, you usually will receive the lump-sum payment in two equal installments. Free tax online You will receive the first installment after you make the choice upon retirement. Free tax online The second installment will be paid to you, with interest, in the next calendar year. Free tax online (Exceptions to the installment rule are provided for cases of critical medical need. Free tax online )   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. Free tax online If the payment has a tax-free part, you must treat the taxable part as received first. Free tax online How to report. Free tax online   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. Free tax online 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. Free tax online    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. Free tax online 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. Free tax online These annuity payments each will have a tax-free and a taxable part. Free tax online To figure the tax-free part of each annuity payment, you must use the Simplified Method (Worksheet A). Free tax online For instructions on how to complete the worksheet, see Worksheet A under Simplified Method, earlier. Free tax online 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. Free tax online Enter as your net cost on line 2 the amount from Worksheet B, line 5. Free tax online 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. Free tax online Example. Free tax online The facts are the same as in the example for David Brown in the preceding discussion. Free tax online In addition, David received 10 annuity payments in 2013 of $1,200 each. Free tax online Using Worksheet A, he figures the taxable part of his annuity payments. Free tax online He completes line 2 by reducing his $31,000 cost by the $6,200 tax-free part of his lump-sum payment. Free tax online His entry on line 2 is his $24,800 net cost in the plan (the amount from Worksheet B, line 5). Free tax online He does not include the tax-free part of his lump-sum payment on Worksheet A, line 6. Free tax online David's filled-in Worksheet A is shown on the next page. Free tax online Worksheet A. Free tax online Simplified Method for David Brown See the instructions in Part II of this publication under Simplified Method . Free tax online 1. Free tax online Enter the total pension or annuity payments received this year. Free tax online Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Free tax online $ 12,000 2. Free tax online Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. Free tax online See Your cost in Part II, Rules for Retirees, earlier 2. Free tax online 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). Free tax online Otherwise, go to line 3. Free tax online   3. Free tax online Enter the appropriate number from Table 1 below. Free tax online 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. Free tax online 3. Free tax online 360 4. Free tax online Divide line 2 by the number on line 3 4. Free tax online 68. Free tax online 89 5. Free tax online Multiply line 4 by the number of months for which this year's payments were made. Free tax online If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Free tax online Otherwise, go to line 6 5. Free tax online 688. Free tax online 90 6. Free tax online Enter any amounts previously recovered tax free in years after 1986. Free tax online This is the amount shown on line 10 of your worksheet for last year 6. Free tax online 0 7. Free tax online Subtract line 6 from line 2 7. Free tax online 24,800 8. Free tax online Enter the smaller of line 5 or line 7 8. Free tax online 688. Free tax online 90 9. Free tax online Taxable amount for year. Free tax online Subtract line 8 from line 1. Free tax online Enter the result, but not less than zero. Free tax online Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. Free tax online If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. Free tax online If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. Free tax online 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. Free tax online $11,311. Free tax online 10 10. Free tax online Was your annuity starting date before 1987?   Yes. Free tax online Do not complete the rest of this worksheet. Free tax online    No. Free tax online Add lines 6 and 8. Free tax online This is the amount you have recovered tax free through 2013. Free tax online You will need this number if you need to fill out this worksheet next year 10. Free tax online 688. Free tax online 90 11. Free tax online Balance of cost to be recovered. Free tax online Subtract line 10 from line 2. Free tax online If zero, you will not have to complete this worksheet next year. Free tax online The payments you receive next year will generally be fully taxable 11. Free tax online $24,111. Free tax online 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. Free tax online Reemployment after choosing the alternative annuity option. Free tax online 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. Free tax online 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. Free tax online Annuity starting date before November 19, 1996. Free tax online   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. Free tax online 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. Free tax online 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. Free tax online 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. Free tax online The gift may be taxable for gift tax purposes. Free tax online The value of the gift is equal to the value of the annuity. Free tax online Joint and survivor annuity. Free tax online   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. Free tax online This will eliminate any gift tax liability with regard to that gift. Free tax online   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. Free tax online This may result in a taxable gift. Free tax online More information. Free tax online   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. Free tax online 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. Free tax online Annual leave. Free tax online   A payment for accrued annual leave received on retirement is a salary payment. Free tax online It is taxable as wages in the tax year you receive it. Free tax online Voluntary contributions. Free tax online   Voluntary contributions to the retirement fund are those made in addition to the regular contributions that were deducted from your salary. Free tax online 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. Free tax online Voluntary contributions are not the same as employee contributions to the Thrift Savings Plan. Free tax online See Thrift Savings Plan , later. Free tax online Additional annuity benefit. Free tax online   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. Free tax online This separate treatment applies for figuring the amounts to be excluded from, and included in, gross income. Free tax online It does not matter that you receive only one monthly check covering both benefits. Free tax online 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. Free tax online   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. Free tax online Refund of voluntary contributions. Free tax online   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. Free tax online 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. Free tax online See Rollover Rules , later. Free tax online The interest does not qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. Free tax online 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. Free tax online For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. Free tax online Community property laws. Free tax online   State community property laws apply to your annuity. Free tax online These laws will affect your income tax only if you file a return separately from your spouse. Free tax online   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. Free tax online 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. Free tax online   At any time, you have only one domicile even though you may have more than one home. Free tax online 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. Free tax online The question of your domicile is mainly a matter of your intentions as indicated by your actions. Free tax online   If your annuity is a mixture of community income and separate income, you must divide it between the two kinds of income. Free tax online The division is based on your periods of service and domicile in community and noncommunity property states while you were married. Free tax online   For more information, see Publication 555, Community Property. Free tax online 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. Free tax online The employing agency usually will pay you the difference between your salary for your period of reemployment and your annuity. Free tax online This amount is taxable as wages. Free tax online Your annuity will continue to be taxed just as it was before. Free tax online If you are still recovering your cost, you continue to do so. Free tax online If you have recovered your cost, the annuity you receive while you are reemployed generally is fully taxable. Free tax online 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. Free tax online A nonresident alien is an individual who is not a citizen or a resident alien of the United States. Free tax online Special rule for figuring your total contributions. Free tax online   Your contributions to the retirement plan (your cost) also include the government's contributions to the plan to a certain extent. Free tax online 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. Free tax online For example, government contributions would not have been taxable to you if, at the time made, your services were performed outside the United States. Free tax online Thus, your cost is increased by these government contributions and the benefits that you, or your beneficiary, must include in income are reduced. Free tax online   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. Free tax online Limit on taxable amount. Free tax online   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. Free tax online Figure this limited taxable amount by multiplying the otherwise taxable amount by a fraction. Free tax online The numerator of the fraction is the retiree's total U. Free tax online S. Free tax online Government basic pay, other than tax-exempt pay for services performed outside the United States. Free tax online The denominator is the retiree's total U. Free tax online S. Free tax online Government basic pay for all services. Free tax online    Basic pay includes regular pay plus any standby differential. Free tax online It does not include bonuses, overtime pay, certain retroactive pay, uniform or other allowances, or lump-sum leave payments. Free tax online   To figure the limited taxable amount of your CSRS or FERS annuity or your TSP distributions, use Worksheet C. Free tax online (For an annuity, first complete Worksheet A in this publication. Free tax online ) Worksheet C. Free tax online Limited Taxable Amount for Nonresident Alien 1. Free tax online 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. Free tax online   2. Free tax online Enter the total U. Free tax online S. Free tax online Government basic pay other than tax-exempt pay for services performed outside the United States 2. Free tax online   3. Free tax online Enter the total U. Free tax online S. Free tax online Government basic pay for all services 3. Free tax online   4. Free tax online Divide line 2 by line 3 4. Free tax online   5. Free tax online Limited taxable amount. Free tax online Multiply line 1 by line 4. Free tax online Enter this amount on Form 1040NR, line 17b 5. Free tax online   Example 1. Free tax online You are a nonresident alien who performed all services for the U. Free tax online S. Free tax online Government abroad as a nonresident alien. Free tax online You retired and began to receive a monthly annuity of $200. Free tax online Your total basic pay for all services for the U. Free tax online S. Free tax online Government was $100,000. Free tax online All of your basic pay was tax exempt because it was not U. Free tax online S. Free tax online source income. Free tax online The taxable amount of your annuity using Worksheet A in this publication is $720. Free tax online You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows. Free tax online Worksheet C. Free tax online Limited Taxable Amount for Nonresident Alien — Example 1 1. Free tax online 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. Free tax online $ 720 2. Free tax online Enter the total U. Free tax online S. Free tax online Government basic pay other than tax-exempt pay for services performed outside the United States 2. Free tax online 0 3. Free tax online Enter the total U. Free tax online S. Free tax online Government basic pay for all services 3. Free tax online 100,000 4. Free tax online Divide line 2 by line 3 4. Free tax online 0 5. Free tax online Limited taxable amount. Free tax online Multiply line 1 by line 4. Free tax online Enter this amount on Form 1040NR, line 17b 5. Free tax online 0 Example 2. Free tax online You are a nonresident alien who performed services for the U. Free tax online S. Free tax online Government as a nonresident alien both within the United States and abroad. Free tax online You retired and began to receive a monthly annuity of $240. Free tax online Your total basic pay for your services for the U. Free tax online S. Free tax online 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. Free tax online The part of your total basic pay for your work done in a foreign country was tax exempt because it was not U. Free tax online S. Free tax online source income. Free tax online The taxable amount of your annuity figured using Worksheet A in this publication is $1,980. Free tax online You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows. Free tax online Worksheet C. Free tax online Limited Taxable Amount for Nonresident Alien — Example 2 1. Free tax online 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. Free tax online $ 1,980 2. Free tax online Enter the total U. Free tax online S. Free tax online Government basic pay other than tax-exempt pay for services performed outside the United States 2. Free tax online 40,000 3. Free tax online Enter the total U. Free tax online S. Free tax online Government basic pay for all services 3. Free tax online 120,000 4. Free tax online Divide line 2 by line 3 4. Free tax online . Free tax online 333 5. Free tax online Limited taxable amount. Free tax online Multiply line 1 by line 4. Free tax online Enter this amount on Form 1040NR, line 17b 5. Free tax online 659 Thrift Savings Plan Generally, all of the money in your TSP account is taxed as ordinary income when you receive it. Free tax online (However, see Roth TSP balance and Uniformed services TSP accounts, next. Free tax online ) This is because neither the contributions to your traditional TSP balance nor its earnings have been included previously in your taxable income. Free tax online The way that you withdraw your account balance determines when you must pay the tax. Free tax online Roth TSP balance. Free tax online   The TSP also offers a Roth TSP option, which allows you to make after-tax contributions into your TSP account. Free tax online This means Roth TSP contributions are included in your income. Free tax online The contribution limits are the same as the traditional TSP. Free tax online You can elect to have part or all of your TSP contributions designated as a Roth TSP. Free tax online Agency contributions will be part of your traditional TSP balance. Free tax online Also, you cannot roll over any portion of your traditional TSP into your Roth TSP. Free tax online   Qualified distributions from your Roth TSP are not included in income. Free tax online This applies to both your cost in the account and income earned on that account. Free tax online 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. Free tax online   For more information, go to the TSP website, www. Free tax online tsp. Free tax online gov, or the TSP Service Office. Free tax online See Publication 575, Pension and Annuity Income, for more information about designated Roth accounts. Free tax online Uniformed services TSP accounts. Free tax online   If you have a uniformed services TSP account that includes contributions from combat zone pay, the distributions attributable to those contributions are tax exempt. Free tax online However, any earnings on those contributions to a traditional TSP balance are subject to tax when they are distributed. Free tax online See Roth TSP balance discussed previously to get more information about Roth contributions. Free tax online 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. Free tax online You can get more information from the TSP website, www. Free tax online tsp. Free tax online gov, or the TSP Service Office. Free tax online Direct rollover by the TSP. Free tax online   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. Free tax online However, see the following Note for a discussion on direct rollovers by the TSP of Roth contributions and its earnings. Free tax online Also, see Rollover Rules , later. Free tax online Direct rollover by the TSP to a Roth IRA. Free tax online   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. Free tax online However, see the following Note for a discussion on direct rollovers by the TSP of Roth contributions and its earnings. Free tax online Also, see Rollovers to Roth IRAs for more information, later. Free tax online Note. Free tax online 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. Free tax online This is because you already paid tax on those contributions. Free tax online You cannot rollover Roth contributions and its earnings in your TSP account to a traditional IRA. Free tax online TSP annuity. Free tax online   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. Free tax online The payments are not subject to the additional 10% tax on early distributions, even if you are under age 55 when they begin. Free tax online 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. Free tax online See Roth TSP balance , earlier. Free tax online This is because you already paid tax on those contributions. Free tax online Cash withdrawals. Free tax online   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. Free tax online (See Rollover Rules , later. Free tax online ) 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. Free tax online See Lump-Sum Distributions in Publication 575 for details. Free tax online However, there is no tax if you withdraw money in your TSP account from Roth contributions and its earnings if certain conditions are met. Free tax online See Roth TSP balance , earlier. Free tax online    To qualify for the 10-year tax option, the plan participant must have been born before January 2, 1936. Free tax online   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. Free tax online 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. Free tax online See also Withholding from Thrift Savings Plan payments earlier under Tax Withholding and Estimated Tax in Part I. Free tax online 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. Free tax online See Roth TSP balance , earlier, for a discussion of those conditions. Free tax online Tax on early distributions. Free tax online   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. Free tax online However, this additional tax does not apply in certain situations, including any of the following. Free tax online You receive the distribution and separate from government service during or after the calendar year in which you reach age 55. Free tax online You choose to receive your account balance in monthly payments based on your life expectancy. Free tax online You are totally and permanently disabled. Free tax online You receive amounts from your Roth contributions since that represents a return of your cost (after-tax money). Free tax online The earnings may be subject to the 10% tax depending on whether you met certain conditions. Free tax online See Roth TSP balance , earlier. Free tax online   For more information, see Tax on Early Distributions in Publication 575. Free tax online Outstanding loan. Free tax online   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. Free tax online The distribution also may be subject to the additional 10% tax on early distributions. Free tax online 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. Free tax online See Rollover Rules , later. Free tax online   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. Free tax online However, no withholding is required for portions of the distribution that is from Roth contributions and its earnings, if certain conditions are met. Free tax online See Roth TSP balance , earlier. Free tax online More information. Free tax online   For more information about the TSP, see Summary of the Thrift Savings Plan, distributed to all federal employees. Free tax online 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). Free tax online    The above documents are also available on the TSP website at www. Free tax online tsp. Free tax online gov. Free tax online Select “Forms & Publications. Free tax online ” 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. Free tax online You do not include the amount rolled over in your income, and you cannot take a deduction for it. Free tax online The amount rolled over is taxed later as the new program pays that amount to you. Free tax online 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. Free tax online 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. Free tax online To qualify for the capital gain treatment or 10-year tax option, the plan participant must have been born before January 2, 1936. Free tax online You can also roll over a distribution from a qualified retirement plan into a Roth IRA. Free tax online 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. Free tax online See Rollovers to Roth IRAs , later, for more information. Free tax online Qualified retirement plan. Free tax online   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. Free tax online The CSRS, FERS, and TSP are considered qualified retirement plans. Free tax online Distributions eligible for rollover treatment. Free tax online   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. Free tax online You cannot roll over any part of your CSRS or FERS annuity payments. Free tax online   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. Free tax online   In addition, a distribution to your beneficiary generally is not treated as an eligible rollover distribution. Free tax online However, see Qualified domestic relations order (QDRO) and Rollovers by surviving spouse , and Rollovers by nonspouse beneficiary , later. Free tax online Direct rollover option. Free tax online   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. Free tax online   There is an automatic rollover requirement for mandatory distributions. Free tax online A mandatory distribution is a distribution made without your consent and before you reach age 62 or normal retirement age, whichever is later. Free tax online The automatic rollover requirement applies if the distribution is more than $1,000 and is an eligible rollover distribution. Free tax online 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. Free tax online If you do not make this choice, OPM will automatically roll over the distribution into an IRA of a designated trustee or issuer. Free tax online No tax withheld. Free tax online   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. Free tax online 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. Free tax online Any part of the eligible rollover distribution paid to you is subject to withholding at a 20% rate. Free tax online Direct roll over amounts from Roth contributions and its earnings do not have tax withheld because you already paid tax on those amounts. Free tax online Payment to you option. Free tax online   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. Free tax online However, the full amount is treated as distributed to you even though you actually receive only 80%. Free tax online 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. Free tax online Rollovers to Roth IRAs are generally included in income. Free tax online Eligible rollover distributions that are from Roth contributions do not have tax withheld because you already paid tax on those amounts. Free tax online 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. Free tax online 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). Free tax online Earnings from those contributions may be subject to the 10% additional tax if certain conditions are not met. Free tax online See Roth TSP balance , earlier. Free tax online Also, see Tax on Early Distributions in Publication 575. Free tax online Exception to withholding. Free tax online   Withholding from an eligible rollover distribution paid to you is not required if the distributions for your tax year total less than $200. Free tax online Partial rollovers. Free tax online   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. Free tax online See Lump-Sum Distributions in Publication 575. Free tax online However, if you roll over any part of the distribution, the part you keep does not qualify for this special tax treatment. Free tax online Rolling over more than amount received. Free tax online   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). Free tax online Example. Free tax online You left government service at age 53. Free tax online On February 1, 2013, you receive an eligible rollover distribution of $10,000 from you
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Free tax online 11. Free tax online   Departing Aliens and the Sailing or Departure Permit Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Aliens Not Required To Obtain Sailing or Departure Permits Aliens Required To Obtain Sailing or Departure PermitsGetting a Sailing or Departure Permit Forms To File Paying Taxes and Obtaining Refunds Bond To Ensure Payment Filing Annual U. Free tax online S. Free tax online Income Tax Returns Introduction Before leaving the United States, all aliens (except those listed under Aliens Not Required To Obtain Sailing or Departure Permits must obtain a certificate of compliance. Free tax online This document, also popularly known as the sailing permit or departure permit, is part of the income tax form you must file before leaving. Free tax online You will receive a sailing or departure permit after filing a Form 1040-C or Form 2063. Free tax online These forms are discussed in this chapter. Free tax online To find out if you need a sailing or departure permit, first read Aliens Not Required To Obtain Sailing or Departure Permits . Free tax online If you do not fall into one of the categories in that discussion, you must obtain a sailing or departure permit. Free tax online Read Aliens Required To Obtain Sailing or Departure Permits . Free tax online Topics - This chapter discusses: Who needs a sailing permit, How to get a sailing permit, and Forms you file to get a sailing permit. Free tax online Useful Items - You may want to see: Form (and Instructions) 1040-C U. Free tax online S. Free tax online Departing Alien Income Tax Return 2063 U. Free tax online S. Free tax online Departing Alien Income Tax Statement See chapter 12 for information about getting these forms. Free tax online Aliens Not Required To Obtain Sailing or Departure Permits If you are included in one of the following categories, you do not have to get a sailing or departure permit before leaving the United States. Free tax online If you are in one of these categories and do not have to get a sailing or departure permit, you must be able to support your claim for exemption with proper identification or give the authority for the exemption. Free tax online Category 1. Free tax online   Representatives of foreign governments with diplomatic passports, whether accredited to the United States or other countries, members of their households, and servants accompanying them. Free tax online Servants who are leaving, but not with a person with a diplomatic passport, must get a sailing or departure permit. Free tax online However, they can get a sailing or departure permit on Form 2063 without examination of their income tax liability by presenting a letter from the chief of their diplomatic mission certifying that: Their name appears on the “White List” (a list of employees of diplomatic missions), and They do not owe to the United States any income tax, and will not owe any tax up to and including the intended date of departure. Free tax online   The statement must be presented to an IRS office. Free tax online Category 2. Free tax online    Employees of international organizations and foreign governments (other than diplomatic representatives exempt under category 1) and members of their households: Whose compensation for official services is exempt from U. Free tax online S. Free tax online tax under U. Free tax online S. Free tax online tax laws (described in chapter 10), and Who receive no other income from U. Free tax online S. Free tax online sources. Free tax online If you are an alien in category (1) or (2), above, who filed the waiver under section 247(b) of the Immigration and Nationality Act, you must get a sailing or departure permit. Free tax online This is true even if your income is exempt from U. Free tax online S. Free tax online tax because of an income tax treaty, consular agreement, or international agreement. Free tax online Category 3. Free tax online   Alien students, industrial trainees, and exchange visitors, including their spouses and children, who enter on an “F-1,” “F-2,” “H-3,” “H-4,” “J-1,” “J-2,” or “Q” visa only and who receive no income from U. Free tax online S. Free tax online sources while in the United States under those visas other than: Allowances to cover expenses incident to study or training in the United States, such as expenses for travel, maintenance, and tuition, The value of any services or food and lodging connected with this study or training, Income from employment authorized by the U. Free tax online S. Free tax online Citizenship and Immigration Services (USCIS), or Interest income on deposits that is not effectively connected with a U. Free tax online S. Free tax online trade or business. Free tax online (See Interest Income in chapter 3. Free tax online ) Category 4. Free tax online   Alien students, including their spouses and children, who enter on an “M-1” or “M-2” visa only and who receive no income from U. Free tax online S. Free tax online sources while in the United States under those visas, other than: Income from employment authorized by the U. Free tax online S. Free tax online Citizenship and Immigration Services (USCIS) or Interest income on deposits that is not effectively connected with a U. Free tax online S. Free tax online trade or business. Free tax online (See Interest Income in chapter 3. Free tax online ) Category 5. Free tax online   Certain other aliens temporarily in the United States who have received no taxable income during the tax year up to and including the date of departure or during the preceding tax year. Free tax online If the IRS has reason to believe that an alien has received income subject to tax and that the collection of income tax is jeopardized by departure, it may then require the alien to obtain a sailing or departure permit. Free tax online Aliens in this category are: Alien military trainees who enter the United States for training under the sponsorship of the Department of Defense and who leave the United States on official military travel orders, Alien visitors for business on a “B-1” visa, or on both a “B-1” visa and a “B-2” visa, who do not remain in the United States or a U. Free tax online S. Free tax online possession for more than 90 days during the tax year, Alien visitors for pleasure on a “B-2” visa, Aliens in transit through the United States or any of its possessions on a “C-1” visa, or under a contract, such as a bond agreement, between a transportation line and the Attorney General, and Aliens who enter the United States on a border-crossing identification card or for whom passports, visas, and border-crossing identification cards are not required, if they are: Visitors for pleasure, Visitors for business who do not remain in the United States or a U. Free tax online S. Free tax online possession for more than 90 days during the tax year, or In transit through the United States or any of its possessions. Free tax online Category 6. Free tax online   Alien residents of Canada or Mexico who frequently commute between that country and the United States for employment, and whose wages are subject to the withholding of U. Free tax online S. Free tax online tax. Free tax online Aliens Required To Obtain Sailing or Departure Permits If you do not fall into one of the categories listed under Aliens Not Required To Obtain Sailing or Departure Permits, you must obtain a sailing or departure permit. Free tax online To obtain a permit, file Form 1040-C or Form 2063 (whichever applies) with your local IRS office before you leave the United States. Free tax online See Forms To File , later. Free tax online You must also pay all the tax shown as due on Form 1040-C and any taxes due for past years. Free tax online See Paying Taxes and Obtaining Refunds , later. Free tax online Getting a Sailing or Departure Permit The following discussion covers when and where to get your sailing permit. Free tax online Where to get a sailing or departure permit. Free tax online   If you have been working in the United States, you should get the permit from an IRS office in the area of your employment, or you may obtain one from an IRS office in the area of your departure. Free tax online When to get a sailing or departure permit. Free tax online   You should get your sailing or departure permit at least 2 weeks before you plan to leave. Free tax online You cannot apply earlier than 30 days before your planned departure date. Free tax online Do not wait until the last minute in case there are unexpected problems. Free tax online Papers to submit. Free tax online   Getting your sailing or departure permit will go faster if you bring to the IRS office papers and documents related to your income and your stay in the United States. Free tax online Bring the following records with you if they apply. Free tax online Your passport and alien registration card or visa. Free tax online Copies of your U. Free tax online S. Free tax online income tax returns filed for the past 2 years. Free tax online If you were in the United States for less than 2 years, bring the income tax returns you filed for that period. Free tax online Receipts for income taxes paid on these returns. Free tax online Receipts, bank records, canceled checks, and other documents that prove your deductions, business expenses, and dependents claimed on your returns. Free tax online A statement from each employer showing wages paid and tax withheld from January 1 of the current year to the date of departure if you were an employee. Free tax online If you were self-employed, you must bring a statement of income and expenses up to the date you plan to leave. Free tax online Proof of estimated tax payments for the past year and this year. Free tax online Documents showing any gain or loss from the sale of personal property and/or real property, including capital assets and merchandise. Free tax online Documents relating to scholarship or fellowship grants including: Verification of the grantor, source, and purpose of the grant. Free tax online Copies of the application for, and approval of, the grant. Free tax online A statement of the amount paid, and your duties and obligations under the grant. Free tax online A list of any previous grants. Free tax online Documents indicating you qualify for any special tax treaty benefits claimed. Free tax online Document verifying your date of departure from the United States, such as an airline ticket. Free tax online Document verifying your U. Free tax online S. Free tax online taxpayer identification number, such as a social security card or an IRS issued Notice CP 565 showing your individual taxpayer identification number (ITIN). Free tax online Note. Free tax online   If you are married and reside in a community property state, also bring the above-listed documents for your spouse. Free tax online This applies whether or not your spouse requires a permit. Free tax online Forms To File If you must get a sailing or departure permit, you must file Form 2063 or Form 1040-C. Free tax online Employees in the IRS office can assist in filing these forms. Free tax online Both forms have a “certificate of compliance” section. Free tax online When the certificate of compliance is signed by an agent of the Field Assistance Area Director, it certifies that your U. Free tax online S. Free tax online tax obligations have been satisfied according to available information. Free tax online Your Form 1040-C copy of the signed certificate, or the one detached from Form 2063, is your sailing or departure permit. Free tax online Form 2063 This is a short form that asks for certain information but does not include a tax computation. Free tax online The following departing aliens can get their sailing or departure permits by filing Form 2063. Free tax online Aliens, whether resident or nonresident, who have had no taxable income for the tax year up to and including the date of departure and for the preceding year, if the period for filing the income tax return for that year has not expired. Free tax online Resident aliens who have received taxable income during the tax year or preceding year and whose departure will not hinder the collection of any tax. Free tax online However, if the IRS has information indicating that the aliens are leaving to avoid paying their income tax, they must file a Form 1040-C. Free tax online Aliens in either of these categories who have not filed an income tax return or paid income tax for any tax year must file the return and pay the income tax before they can be issued a sailing or departure permit on Form 2063. Free tax online The sailing or departure permit detached from Form 2063 can be used for all departures during the current year. Free tax online However, the IRS may cancel the sailing or departure permit for any later departure if it believes the collection of income tax is jeopardized by that later departure. Free tax online Form 1040-C If you must get a sailing or departure permit and you do not qualify to file Form 2063, you must file Form 1040-C. Free tax online Ordinarily, all income received or reasonably expected to be received during the tax year up to and including the date of departure must be reported on Form 1040-C and the tax on it must be paid. Free tax online When you pay any tax shown as due on the Form 1040-C, and you file all returns and pay all tax due for previous years, you will receive a sailing or departure permit. Free tax online However, the IRS may permit you to furnish a bond guaranteeing payment instead of paying the taxes for certain years. Free tax online See Bond To Ensure Payment , discussed later. Free tax online The sailing or departure permit issued under the conditions in this paragraph is only for the specific departure for which it is issued. Free tax online Returning to the United States. Free tax online   If you furnish the IRS with information showing, to the satisfaction of the IRS, that you intend to return to the United States and that your departure does not jeopardize the collection of income tax, you can get a sailing or departure permit by filing Form 1040-C without having to pay the tax shown on it. Free tax online You must, however, file all income tax returns that have not yet been filed as required, and pay all income tax that is due on these returns. Free tax online   Your Form 1040-C must include all income received and reasonably expected to be received during the entire year of departure. Free tax online The sailing or departure permit issued with this Form 1040-C can be used for all departures during the current year. Free tax online However, the Service may cancel the sailing or departure permit for any later departure if the payment of income tax appears to be in jeopardy. Free tax online Joint return on Form 1040-C. Free tax online   Departing husbands and wives who are nonresident aliens cannot file joint returns. Free tax online However, if both spouses are resident aliens, they can file a joint return on Form 1040-C if: Both spouses can reasonably be expected to qualify to file a joint return at the normal close of their tax year, and The tax years of the spouses end at the same time. Free tax online Paying Taxes and Obtaining Refunds You must pay all tax shown as due on the Form 1040-C at the time of filing it, except when a bond is furnished, or the IRS is satisfied that your departure does not jeopardize the collection of income tax. Free tax online You must also pay any taxes due for past years. Free tax online If the tax computation on Form 1040-C results in an overpayment, there is no tax to pay at the time you file that return. Free tax online However, the IRS cannot provide a refund at the time of departure. Free tax online If you are due a refund, you must file either Form 1040NR or Form 1040NR-EZ at the end of the tax year. Free tax online Bond To Ensure Payment Usually, you must pay the tax shown as due on Form 1040-C when you file it. Free tax online However, if you pay all taxes due that you owe for prior years, you can furnish a bond guaranteeing payment instead of paying the income taxes shown as due on the Form 1040-C or the tax return for the preceding year if the period for filing that return has not expired. Free tax online The bond must equal the tax due plus interest to the date of payment as figured by the IRS. Free tax online Information about the form of bond and security on it can be obtained from your IRS office. Free tax online Filing Annual U. Free tax online S. Free tax online Income Tax Returns Form 1040-C is not an annual U. Free tax online S. Free tax online income tax return. Free tax online If an income tax return is required by law, that return must be filed even though a Form 1040-C has already been filed. Free tax online Chapters 5 and 7 discuss filing an annual U. Free tax online S. Free tax online income tax return. Free tax online The tax paid with Form 1040-C should be taken as a credit against the tax liability for the entire tax year on your annual U. Free tax online S. Free tax online income tax return. Free tax online Prev  Up  Next   Home   More Online Publications