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New taxes 3. New taxes   Gifts Table of Contents If you give gifts in the course of your trade or business, you can deduct all or part of the cost. New taxes This chapter explains the limits and rules for deducting the costs of gifts. New taxes $25 limit. New taxes   You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. New taxes A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift. New taxes   If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. New taxes This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use. New taxes   If you and your spouse both give gifts, both of you are treated as one taxpayer. New taxes It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. New taxes If a partnership gives gifts, the partnership and the partners are treated as one taxpayer. New taxes Example. New taxes Bob Jones sells products to Local Company. New taxes He and his wife, Jan, gave Local Company three gourmet gift baskets to thank them for their business. New taxes They paid $80 for each gift basket, or $240 total. New taxes Three of Local Company's executives took the gift baskets home for their families' use. New taxes Bob and Jan have no independent business relationship with any of the executives' other family members. New taxes They can deduct a total of $75 ($25 limit × 3) for the gift baskets. New taxes Incidental costs. New taxes   Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. New taxes   A cost is incidental only if it does not add substantial value to the gift. New taxes For example, the cost of gift wrapping is an incidental cost. New taxes However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit. New taxes Exceptions. New taxes   The following items are not considered gifts for purposes of the $25 limit. New taxes An item that costs $4 or less and: Has your name clearly and permanently imprinted on the gift, and Is one of a number of identical items you widely distribute. New taxes Examples include pens, desk sets, and plastic bags and cases. New taxes Signs, display racks, or other promotional material to be used on the business premises of the recipient. New taxes    Figure B. New taxes When Are Transportation Expenses Deductible? Most employees and self-employed persons can use this chart. New taxes (Do not use this chart if your home is your principal place of business. New taxes See Office in the home . New taxes ) Please click here for the text description of the image. New taxes Figure B. New taxes When Are Local Transportation Expenses Deductible?TAs for Figure B are: Reg 1. New taxes 162-1(a); RR 55–109; RR 94–47 Gift or entertainment. New taxes   Any item that might be considered either a gift or entertainment generally will be considered entertainment. New taxes However, if you give a customer packaged food or beverages you intend the customer to use at a later date, treat it as a gift. New taxes    If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. New taxes You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage. New taxes   You can change your treatment of the tickets at a later date by filing an amended return. New taxes Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. New taxes    If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. New taxes You cannot choose, in this case, to treat the cost of the tickets as a gift expense. New taxes Prev  Up  Next   Home   More Online Publications
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New taxes 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. New taxes Gross monthly rate. New taxes Your cost. New taxes Choosing a survivor annuity after retirement. New taxes Canceling a survivor annuity after retirement. New taxes Annuity starting date after 1986. New taxes Annuity starting date before 1987. New taxes 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. New taxes 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. New taxes The refund will include both regular and voluntary contributions you made to the fund, plus any interest payable. New taxes If the refund includes only your contributions, none of the refund is taxable. New taxes 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). New taxes 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. New taxes See Rollover Rules in Part II for information on how to make a rollover. New taxes 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. New taxes Therefore, many employees who withdraw their contributions under the CSRS do not get interest and do not owe any tax on their refund. New taxes 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. New taxes 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. New taxes For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. New taxes 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. New taxes 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. New taxes OPM will tell you how to make the choice. New taxes The choice for no withholding remains in effect until you change it. New taxes These withholding rules also apply to a disability annuity, whether received before or after minimum retirement age. New taxes 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. New taxes 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. New taxes 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. New taxes For more information, including exceptions to the penalty, see chapter 4 of Publication 505, Tax Withholding and Estimated Tax. New taxes Form CSA 1099R. New taxes   Form CSA 1099R is mailed to you by OPM each year. New taxes It will show any tax you had withheld. New taxes File a copy of Form CSA 1099R with your tax return if any federal income tax was withheld. New taxes    You also can view and download your Form CSA 1099R by visiting the OPM website at  www. New taxes servicesonline. New taxes opm. New taxes gov. New taxes To log in, you will need your retirement CSA claim number and your personal identification number. New taxes Choosing no withholding on payments outside the United States. New taxes   The choice for no withholding generally cannot be made for annuity payments to be delivered outside the United States and its possessions. New taxes   To choose no withholding if you are a U. New taxes S. New taxes citizen or resident alien, you must provide OPM with your home address in the United States or its possessions. New taxes Otherwise, OPM has to withhold tax. New taxes For example, OPM must withhold if you provide a U. New taxes S. New taxes 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. New taxes S. New taxes home address. New taxes   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. New taxes S. New taxes citizen, a U. New taxes S. New taxes resident alien, or someone who left the United States to avoid tax. New taxes But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. New taxes For details, see Publication 519, U. New taxes S. New taxes Tax Guide for Aliens. New taxes Withholding certificate. New taxes   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. New taxes The amount of tax withheld depends on your marital status, the number of withholding allowances, and any additional amount you designate to be withheld. New taxes If you do not make either of these choices, OPM must withhold as if you were married with three withholding allowances. New taxes 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. New taxes C. New taxes calling area must call 202-606-0500). New taxes No special form is needed. New taxes You will need your retirement CSA or CSF claim number, your social security number, and your personal identification number (PIN) when you call. New taxes If you have TTY/TDD equipment, call 1-855–887–4957. New taxes If you need a PIN, call OPM's Retirement Information Office. New taxes You also can change the amount of withholding or stop withholding online by visiting the OPM website at www. New taxes servicesonline. New taxes opm. New taxes gov. New taxes You will need your retirement CSA or CSF claim number and your PIN. New taxes Withholding from certain lump-sum payments. New taxes   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. New taxes Tax will be withheld at a 20% rate on the interest distributed. New taxes However, tax will not be withheld if you have OPM transfer (roll over) the interest directly to your traditional IRA or other qualified plan. New taxes If you have OPM transfer (roll over) the interest directly to a Roth IRA, the entire amount will be taxed in the current year. New taxes Because no income tax will be withheld at the time of the transfer, you may want to increase your withholding or pay estimated taxes. New taxes See Rollover Rules in Part II. New taxes If you receive only your contributions, no tax will be withheld. New taxes Withholding from Thrift Savings Plan payments. New taxes   Generally, a distribution that you receive from the TSP is subject to federal income tax withholding. New taxes 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. New taxes  However, you usually can choose not to have tax withheld from TSP payments other than eligible rollover distributions. New taxes 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. New taxes   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. New taxes The above document is also available in the “Forms & Publications” section of the TSP website at www. New taxes tsp. New taxes gov. New taxes Estimated tax. New taxes   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)). New taxes The return must cover all 12 months. New taxes   You do not have to pay estimated tax for 2014 if you were a U. New taxes S. New taxes citizen or resident alien for all of 2013 and you had no tax liability for the full 12-month 2013 tax year. New taxes   Publication 505 contains information that you can use to help you figure your estimated tax payments. New taxes 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. New taxes The gross income filing requirements for the tax year are in the instructions to Form 1040, 1040A, or 1040EZ. New taxes Children. New taxes   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. New taxes   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. New taxes Form CSF 1099R. New taxes   Form CSF 1099R will be mailed to you by January 31 after the end of each tax year. New taxes It will show the total amount of the annuity you received in the past year. New taxes It also should show, separately, the survivor annuity for a child or children. New taxes Only the part that is each individual's survivor annuity should be shown on that individual's Form 1040 or 1040A. New taxes   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. New taxes    You also can view and download your Form CSF 1099R by visiting the OPM website at  www. New taxes servicesonline. New taxes opm. New taxes gov. New taxes To log in you will need your retirement CSF claim number and personal identification number. New taxes    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. New taxes C. New taxes calling area must call 202-606-0500). New taxes You will need your CSF claim number and your social security number when you call. New taxes Taxable part of annuity. New taxes   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. New taxes 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. New taxes Part II Rules for Retirees This part of the publication is for retirees who retired on nondisability retirement. New taxes 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. New taxes 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. New taxes Annuity statement. New taxes   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). New taxes You will use this information to figure the tax-free recovery of your cost. New taxes Annuity starting date. New taxes   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. New taxes 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. New taxes Gross monthly rate. New taxes   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. New taxes Your cost. New taxes   Your monthly annuity payment contains an amount on which you have previously paid income tax. New taxes This amount represents part of your contributions to the retirement plan. New taxes 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. New taxes   The cost of your annuity is the total of your contributions to the retirement plan, as shown on your annuity statement from OPM. New taxes If you elected the alternative annuity option, it includes any deemed deposits and any deemed redeposits that were added to your lump-sum credit. New taxes (See Lump-sum credit under Alternative Annuity Option, later. New taxes )   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. New taxes You cannot claim an interest deduction for any interest payments. New taxes You cannot treat these payments as voluntary contributions; they are considered regular employee contributions. New taxes Recovering your cost tax free. New taxes   How you figure the tax-free recovery of the cost of your CSRS or FERS annuity depends on your annuity starting date. New taxes 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. New taxes 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). New taxes If your annuity starting date is after November 18, 1996, you must use the Simplified Method. New taxes   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). New taxes The tax-free part is a fixed dollar amount. New taxes It remains the same, even if your annuity is increased. New taxes Generally, this rule applies as long as you receive your annuity. New taxes However, see Exclusion limit , later. New taxes Choosing a survivor annuity after retirement. New taxes    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. New taxes   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. New taxes To figure the new exclusion percentage, reduce your cost by the amount you previously recovered tax free. New taxes Figure the expected return as of the date the reduced annuity begins. New taxes For details on the General Rule, see Publication 939. New taxes Canceling a survivor annuity after retirement. New taxes   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. New taxes The increased annuity does not change the cost recovery you figured at the annuity starting date. New taxes The tax-free part of each annuity payment remains the same. New taxes    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. New taxes C. New taxes calling area must call 202-606-0500). New taxes Exclusion limit. New taxes   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. New taxes Annuity starting date after 1986. New taxes   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. New taxes Annuity payments you or your survivors receive after the total cost in the plan has been recovered are generally fully taxable. New taxes Example. New taxes Your annuity starting date is after 1986 and you exclude $100 a month under the Simplified Method. New taxes If your cost is $12,000, the exclusion ends after 10 years (120 months). New taxes Thereafter, your entire annuity is generally fully taxable. New taxes Annuity starting date before 1987. New taxes   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. New taxes If you chose a joint and survivor annuity, your survivor can continue to take that same exclusion. New taxes The total exclusion may be more than your cost. New taxes Deduction of unrecovered cost. New taxes   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. New taxes 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). New taxes If your annuity starting date is before July 2, 1986, no tax benefit is allowed for any unrecovered cost at death. New taxes 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. New taxes (OPM has figured the taxable amount of your annuity shown on your Form CSA 1099R using the Simplified Method. New taxes ) 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. New taxes The Simplified Method does not apply if your annuity starting date is before July 2, 1986. New taxes 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. New taxes This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. New taxes 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. New taxes Worksheet A. New taxes   Use Worksheet A. New taxes Simplified Method (near the end of this publication), to figure your taxable annuity. New taxes Be sure to keep the completed worksheet. New taxes It will help you figure your taxable amounts for later years. New taxes 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. New taxes However, you must use Worksheet A and Worksheet B in this publication if you chose the alternative annuity option, discussed later. New taxes Line 2. New taxes   See Your cost , earlier, for an explanation of your cost in the plan. New taxes 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. New taxes Line 3. New taxes   The number you enter on line 3 is the appropriate number from Table 1 or 2 representing approximate life expectancies in months. New taxes 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. New taxes If your annuity starting date is before 1998, use Table 1. New taxes Line 6. New taxes   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. New taxes 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. New taxes Example. New taxes Bill Smith retired from the Federal Government on March 31, 2013, under an annuity that will provide a survivor benefit for his wife, Kathy. New taxes 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. New taxes He must use the Simplified Method to figure the tax-free part of his annuity benefits. New taxes Bill's monthly annuity benefit is $1,000. New taxes He had contributed $31,000 to his retirement plan and had received no distributions before his annuity starting date. New taxes At his annuity starting date, he was 65 and Kathy was 57. New taxes Bill's completed Worksheet A is shown later. New taxes 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). New taxes Bill keeps a copy of the completed worksheet for his records. New taxes It will help him (and Kathy, if she survives him) figure the taxable amount of the annuity in later years. New taxes Bill's tax-free monthly amount is $100. New taxes (See line 4 of the worksheet. New taxes ) 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. New taxes 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. New taxes 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. New taxes 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. New taxes 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. New taxes 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. New taxes 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. New taxes Figuring this percentage is complex and requires the use of actuarial tables. New taxes For these tables and other information about using the General Rule, see Publication 939. New taxes 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. New taxes Under this rule, you excluded all the annuity payments from income until you fully recovered your cost. New taxes After your cost was recovered, all payments became fully taxable. New taxes You cannot use another rule to again exclude amounts from income. New taxes The Three-Year Rule was repealed for retirees whose annuity starting date is after July 1, 1986. New taxes Worksheet A. New taxes Simplified Method for Bill Smith See the instructions in Part II of this publication under Simplified Method. New taxes 1. New taxes Enter the total pension or annuity payments received this year. New taxes Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. New taxes $ 8,000 2. New taxes Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. New taxes See Your cost in Part II, Rules for Retirees, earlier 2. New taxes 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). New taxes Otherwise, go to line 3. New taxes   3. New taxes Enter the appropriate number from Table 1 below. New taxes 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. New taxes 3. New taxes 310 4. New taxes Divide line 2 by the number on line 3 4. New taxes 100 5. New taxes Multiply line 4 by the number of months for which this year's payments were made. New taxes If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. New taxes Otherwise, go to line 6 5. New taxes 800 6. New taxes Enter any amounts previously recovered tax free in years after 1986. New taxes This is the amount shown on line 10 of your worksheet for last year 6. New taxes 0 7. New taxes Subtract line 6 from line 2 7. New taxes 31,000 8. New taxes Enter the smaller of line 5 or line 7 8. New taxes 800 9. New taxes Taxable amount for year. New taxes Subtract line 8 from line 1. New taxes Enter the result, but not less than zero. New taxes Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. New taxes If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. New taxes If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. New taxes 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. New taxes $7,200 10. New taxes Was your annuity starting date before 1987?   Yes. New taxes Do not complete the rest of this worksheet. New taxes    No. New taxes Add lines 6 and 8. New taxes This is the amount you have recovered tax free through 2013. New taxes You will need this number if you need to fill out this worksheet next year 10. New taxes 800 11. New taxes Balance of cost to be recovered. New taxes Subtract line 10 from line 2. New taxes If zero, you will not have to complete this worksheet next year. New taxes The payments you receive next year will generally be fully taxable 11. New taxes $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. New taxes Alternative Annuity Option If you are eligible, you may choose an alternative form of annuity. New taxes If you make this choice, you will receive a lump-sum payment equal to your contributions to the plan and a reduced monthly annuity. New taxes You are eligible to make this choice if you meet all of the following requirements. New taxes You are retiring, but not on disability. New taxes You have a life-threatening illness or other critical medical condition. New taxes You do not have a former spouse entitled to court ordered benefits based on your service. New taxes 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. New taxes Lump-Sum Payment The lump-sum payment you receive under the alternative annuity option generally has a tax-free part and a taxable part. New taxes The tax-free part represents part of your cost. New taxes The taxable part represents part of the earnings on your annuity contract. New taxes 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. New taxes Deemed deposits and redeposits, which are described later under Lump-sum credit , are taxable to you in the year of retirement. New taxes Your taxable amount may therefore be more than the lump-sum payment you receive. New taxes 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. New taxes 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. New taxes See Rollover Rules , later, for information on how to make a rollover. New taxes OPM can make a direct rollover only up to the amount of the lump-sum payment. New taxes Therefore, to defer tax on the full taxable amount if it is more than the payment, you must add funds from another source. New taxes 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. New taxes 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. New taxes For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. New taxes Worksheet B. New taxes   Use Worksheet B. New taxes Lump-Sum Payment (near the end of this publication), to figure the taxable part of your lump-sum payment. New taxes Be sure to keep the completed worksheet for your records. New taxes   To complete the worksheet, you will need to know the amount of your lump-sum credit and the present value of your annuity contract. New taxes Lump-sum credit. New taxes   Generally, this is the same amount as the lump-sum payment you receive (the total of your contributions to the retirement system). New taxes 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. New taxes Deemed deposits (including interest) are for federal employment during which no retirement contributions were taken out of your pay. New taxes Deemed redeposits (including interest) are for any refunds of retirement contributions that you received and did not repay. New taxes 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. New taxes Present value of your annuity contract. New taxes   The present value of your annuity contract is figured using actuarial tables provided by the IRS. New taxes 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. New taxes Internal Revenue Service Attn: Actuarial Group 2 TE/GE SE:T:EP:RA:T:A2 NCA-629 1111 Constitution Ave. New taxes , NW Washington, DC 20224-0002 Example. New taxes David Brown retired from the federal government in 2013, one month after his 55th birthday. New taxes 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. New taxes The present value of his annuity contract was $155,000. New taxes The tax-free part and the taxable part of the lump-sum payment are figured using Worksheet B, as shown below. New taxes 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. New taxes See Reduced Annuity , later. New taxes Worksheet B. New taxes Lump-Sum Payment for David Brown See the instructions in Part II of this publication under Alternative Annuity Option . New taxes  1. New taxes Enter your lump-sum credit (your cost in the plan at the annuity starting date) 1. New taxes $ 31,000 2. New taxes Enter the present value of your annuity contract 2. New taxes 155,000 3. New taxes Divide line 1 by line 2 3. New taxes . New taxes 20 4. New taxes Tax-free amount. New taxes Multiply line 1 by line 3. New taxes (Caution: Do not include this amount on line 6 of Worksheet A in this publication. New taxes ) 4. New taxes $6,200 5. New taxes Taxable amount (net cost in the plan). New taxes Subtract line 4 from line 1. New taxes Include this amount in the total on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. New taxes Also, enter this amount on line 2 of Worksheet A in this publication. New taxes 5. New taxes $24,800   Lump-sum payment in installments. New taxes   If you choose the alternative annuity option, you usually will receive the lump-sum payment in two equal installments. New taxes You will receive the first installment after you make the choice upon retirement. New taxes The second installment will be paid to you, with interest, in the next calendar year. New taxes (Exceptions to the installment rule are provided for cases of critical medical need. New taxes )   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. New taxes If the payment has a tax-free part, you must treat the taxable part as received first. New taxes How to report. New taxes   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. New taxes 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. New taxes    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. New taxes 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. New taxes These annuity payments each will have a tax-free and a taxable part. New taxes To figure the tax-free part of each annuity payment, you must use the Simplified Method (Worksheet A). New taxes For instructions on how to complete the worksheet, see Worksheet A under Simplified Method, earlier. New taxes 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. New taxes Enter as your net cost on line 2 the amount from Worksheet B, line 5. New taxes 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. New taxes Example. New taxes The facts are the same as in the example for David Brown in the preceding discussion. New taxes In addition, David received 10 annuity payments in 2013 of $1,200 each. New taxes Using Worksheet A, he figures the taxable part of his annuity payments. New taxes He completes line 2 by reducing his $31,000 cost by the $6,200 tax-free part of his lump-sum payment. New taxes His entry on line 2 is his $24,800 net cost in the plan (the amount from Worksheet B, line 5). New taxes He does not include the tax-free part of his lump-sum payment on Worksheet A, line 6. New taxes David's filled-in Worksheet A is shown on the next page. New taxes Worksheet A. New taxes Simplified Method for David Brown See the instructions in Part II of this publication under Simplified Method . New taxes 1. New taxes Enter the total pension or annuity payments received this year. New taxes Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. New taxes $ 12,000 2. New taxes Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. New taxes See Your cost in Part II, Rules for Retirees, earlier 2. New taxes 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). New taxes Otherwise, go to line 3. New taxes   3. New taxes Enter the appropriate number from Table 1 below. New taxes 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. New taxes 3. New taxes 360 4. New taxes Divide line 2 by the number on line 3 4. New taxes 68. New taxes 89 5. New taxes Multiply line 4 by the number of months for which this year's payments were made. New taxes If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. New taxes Otherwise, go to line 6 5. New taxes 688. New taxes 90 6. New taxes Enter any amounts previously recovered tax free in years after 1986. New taxes This is the amount shown on line 10 of your worksheet for last year 6. New taxes 0 7. New taxes Subtract line 6 from line 2 7. New taxes 24,800 8. New taxes Enter the smaller of line 5 or line 7 8. New taxes 688. New taxes 90 9. New taxes Taxable amount for year. New taxes Subtract line 8 from line 1. New taxes Enter the result, but not less than zero. New taxes Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. New taxes If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. New taxes If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. New taxes 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. New taxes $11,311. New taxes 10 10. New taxes Was your annuity starting date before 1987?   Yes. New taxes Do not complete the rest of this worksheet. New taxes    No. New taxes Add lines 6 and 8. New taxes This is the amount you have recovered tax free through 2013. New taxes You will need this number if you need to fill out this worksheet next year 10. New taxes 688. New taxes 90 11. New taxes Balance of cost to be recovered. New taxes Subtract line 10 from line 2. New taxes If zero, you will not have to complete this worksheet next year. New taxes The payments you receive next year will generally be fully taxable 11. New taxes $24,111. New taxes 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. New taxes Reemployment after choosing the alternative annuity option. New taxes 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. New taxes 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. New taxes Annuity starting date before November 19, 1996. New taxes   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. New taxes 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. New taxes 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. New taxes 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. New taxes The gift may be taxable for gift tax purposes. New taxes The value of the gift is equal to the value of the annuity. New taxes Joint and survivor annuity. New taxes   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. New taxes This will eliminate any gift tax liability with regard to that gift. New taxes   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. New taxes This may result in a taxable gift. New taxes More information. New taxes   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. New taxes 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. New taxes Annual leave. New taxes   A payment for accrued annual leave received on retirement is a salary payment. New taxes It is taxable as wages in the tax year you receive it. New taxes Voluntary contributions. New taxes   Voluntary contributions to the retirement fund are those made in addition to the regular contributions that were deducted from your salary. New taxes 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. New taxes Voluntary contributions are not the same as employee contributions to the Thrift Savings Plan. New taxes See Thrift Savings Plan , later. New taxes Additional annuity benefit. New taxes   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. New taxes This separate treatment applies for figuring the amounts to be excluded from, and included in, gross income. New taxes It does not matter that you receive only one monthly check covering both benefits. New taxes 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. New taxes   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. New taxes Refund of voluntary contributions. New taxes   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. New taxes 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. New taxes See Rollover Rules , later. New taxes The interest does not qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. New taxes 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. New taxes For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. New taxes Community property laws. New taxes   State community property laws apply to your annuity. New taxes These laws will affect your income tax only if you file a return separately from your spouse. New taxes   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. New taxes 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. New taxes   At any time, you have only one domicile even though you may have more than one home. New taxes 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. New taxes The question of your domicile is mainly a matter of your intentions as indicated by your actions. New taxes   If your annuity is a mixture of community income and separate income, you must divide it between the two kinds of income. New taxes The division is based on your periods of service and domicile in community and noncommunity property states while you were married. New taxes   For more information, see Publication 555, Community Property. New taxes 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. New taxes The employing agency usually will pay you the difference between your salary for your period of reemployment and your annuity. New taxes This amount is taxable as wages. New taxes Your annuity will continue to be taxed just as it was before. New taxes If you are still recovering your cost, you continue to do so. New taxes If you have recovered your cost, the annuity you receive while you are reemployed generally is fully taxable. New taxes 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. New taxes A nonresident alien is an individual who is not a citizen or a resident alien of the United States. New taxes Special rule for figuring your total contributions. New taxes   Your contributions to the retirement plan (your cost) also include the government's contributions to the plan to a certain extent. New taxes 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. New taxes For example, government contributions would not have been taxable to you if, at the time made, your services were performed outside the United States. New taxes Thus, your cost is increased by these government contributions and the benefits that you, or your beneficiary, must include in income are reduced. New taxes   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. New taxes Limit on taxable amount. New taxes   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. New taxes Figure this limited taxable amount by multiplying the otherwise taxable amount by a fraction. New taxes The numerator of the fraction is the retiree's total U. New taxes S. New taxes Government basic pay, other than tax-exempt pay for services performed outside the United States. New taxes The denominator is the retiree's total U. New taxes S. New taxes Government basic pay for all services. New taxes    Basic pay includes regular pay plus any standby differential. New taxes It does not include bonuses, overtime pay, certain retroactive pay, uniform or other allowances, or lump-sum leave payments. New taxes   To figure the limited taxable amount of your CSRS or FERS annuity or your TSP distributions, use Worksheet C. New taxes (For an annuity, first complete Worksheet A in this publication. New taxes ) Worksheet C. New taxes Limited Taxable Amount for Nonresident Alien 1. New taxes 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. New taxes   2. New taxes Enter the total U. New taxes S. New taxes Government basic pay other than tax-exempt pay for services performed outside the United States 2. New taxes   3. New taxes Enter the total U. New taxes S. New taxes Government basic pay for all services 3. New taxes   4. New taxes Divide line 2 by line 3 4. New taxes   5. New taxes Limited taxable amount. New taxes Multiply line 1 by line 4. New taxes Enter this amount on Form 1040NR, line 17b 5. New taxes   Example 1. New taxes You are a nonresident alien who performed all services for the U. New taxes S. New taxes Government abroad as a nonresident alien. New taxes You retired and began to receive a monthly annuity of $200. New taxes Your total basic pay for all services for the U. New taxes S. New taxes Government was $100,000. New taxes All of your basic pay was tax exempt because it was not U. New taxes S. New taxes source income. New taxes The taxable amount of your annuity using Worksheet A in this publication is $720. New taxes You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows. New taxes Worksheet C. New taxes Limited Taxable Amount for Nonresident Alien — Example 1 1. New taxes 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. New taxes $ 720 2. New taxes Enter the total U. New taxes S. New taxes Government basic pay other than tax-exempt pay for services performed outside the United States 2. New taxes 0 3. New taxes Enter the total U. New taxes S. New taxes Government basic pay for all services 3. New taxes 100,000 4. New taxes Divide line 2 by line 3 4. New taxes 0 5. New taxes Limited taxable amount. New taxes Multiply line 1 by line 4. New taxes Enter this amount on Form 1040NR, line 17b 5. New taxes 0 Example 2. New taxes You are a nonresident alien who performed services for the U. New taxes S. New taxes Government as a nonresident alien both within the United States and abroad. New taxes You retired and began to receive a monthly annuity of $240. New taxes Your total basic pay for your services for the U. New taxes S. New taxes 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. New taxes The part of your total basic pay for your work done in a foreign country was tax exempt because it was not U. New taxes S. New taxes source income. New taxes The taxable amount of your annuity figured using Worksheet A in this publication is $1,980. New taxes You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows. New taxes Worksheet C. New taxes Limited Taxable Amount for Nonresident Alien — Example 2 1. New taxes 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. New taxes $ 1,980 2. New taxes Enter the total U. New taxes S. New taxes Government basic pay other than tax-exempt pay for services performed outside the United States 2. New taxes 40,000 3. New taxes Enter the total U. New taxes S. New taxes Government basic pay for all services 3. New taxes 120,000 4. New taxes Divide line 2 by line 3 4. New taxes . New taxes 333 5. New taxes Limited taxable amount. New taxes Multiply line 1 by line 4. New taxes Enter this amount on Form 1040NR, line 17b 5. New taxes 659 Thrift Savings Plan Generally, all of the money in your TSP account is taxed as ordinary income when you receive it. New taxes (However, see Roth TSP balance and Uniformed services TSP accounts, next. New taxes ) This is because neither the contributions to your traditional TSP balance nor its earnings have been included previously in your taxable income. New taxes The way that you withdraw your account balance determines when you must pay the tax. New taxes Roth TSP balance. New taxes   The TSP also offers a Roth TSP option, which allows you to make after-tax contributions into your TSP account. New taxes This means Roth TSP contributions are included in your income. New taxes The contribution limits are the same as the traditional TSP. New taxes You can elect to have part or all of your TSP contributions designated as a Roth TSP. New taxes Agency contributions will be part of your traditional TSP balance. New taxes Also, you cannot roll over any portion of your traditional TSP into your Roth TSP. New taxes   Qualified distributions from your Roth TSP are not included in income. New taxes This applies to both your cost in the account and income earned on that account. New taxes 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. New taxes   For more information, go to the TSP website, www. New taxes tsp. New taxes gov, or the TSP Service Office. New taxes See Publication 575, Pension and Annuity Income, for more information about designated Roth accounts. New taxes Uniformed services TSP accounts. New taxes   If you have a uniformed services TSP account that includes contributions from combat zone pay, the distributions attributable to those contributions are tax exempt. New taxes However, any earnings on those contributions to a traditional TSP balance are subject to tax when they are distributed. New taxes See Roth TSP balance discussed previously to get more information about Roth contributions. New taxes 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. New taxes You can get more information from the TSP website, www. New taxes tsp. New taxes gov, or the TSP Service Office. New taxes Direct rollover by the TSP. New taxes   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. New taxes However, see the following Note for a discussion on direct rollovers by the TSP of Roth contributions and its earnings. New taxes Also, see Rollover Rules , later. New taxes Direct rollover by the TSP to a Roth IRA. New taxes   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. New taxes However, see the following Note for a discussion on direct rollovers by the TSP of Roth contributions and its earnings. New taxes Also, see Rollovers to Roth IRAs for more information, later. New taxes Note. New taxes 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. New taxes This is because you already paid tax on those contributions. New taxes You cannot rollover Roth contributions and its earnings in your TSP account to a traditional IRA. New taxes TSP annuity. New taxes   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. New taxes The payments are not subject to the additional 10% tax on early distributions, even if you are under age 55 when they begin. New taxes 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. New taxes See Roth TSP balance , earlier. New taxes This is because you already paid tax on those contributions. New taxes Cash withdrawals. New taxes   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. New taxes (See Rollover Rules , later. New taxes ) 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. New taxes See Lump-Sum Distributions in Publication 575 for details. New taxes However, there is no tax if you withdraw money in your TSP account from Roth contributions and its earnings if certain conditions are met. New taxes See Roth TSP balance , earlier. New taxes    To qualify for the 10-year tax option, the plan participant must have been born before January 2, 1936. New taxes   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. New taxes 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. New taxes See also Withholding from Thrift Savings Plan payments earlier under Tax Withholding and Estimated Tax in Part I. New taxes 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. New taxes See Roth TSP balance , earlier, for a discussion of those conditions. New taxes Tax on early distributions. New taxes   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. New taxes However, this additional tax does not apply in certain situations, including any of the following. New taxes You receive the distribution and separate from government service during or after the calendar year in which you reach age 55. New taxes You choose to receive your account balance in monthly payments based on your life expectancy. New taxes You are totally and permanently disabled. New taxes You receive amounts from your Roth contributions since that represents a return of your cost (after-tax money). New taxes The earnings may be subject to the 10% tax depending on whether you met certain conditions. New taxes See Roth TSP balance , earlier. New taxes   For more information, see Tax on Early Distributions in Publication 575. New taxes Outstanding loan. New taxes   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. New taxes The distribution also may be subject to the additional 10% tax on early distributions. New taxes 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. New taxes See Rollover Rules , later. New taxes   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. New taxes However, no withholding is required for portions of the distribution that is from Roth contributions and its earnings, if certain conditions are met. New taxes See Roth TSP balance , earlier. New taxes More information. New taxes   For more information about the TSP, see Summary of the Thrift Savings Plan, distributed to all federal employees. New taxes 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). New taxes    The above documents are also available on the TSP website at www. New taxes tsp. New taxes gov. New taxes Select “Forms & Publications. New taxes ” 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. New taxes You do not include the amount rolled over in your income, and you cannot take a deduction for it. New taxes The amount rolled over is taxed later as the new program pays that amount to you. New taxes 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. New taxes 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. New taxes To qualify for the capital gain treatment or 10-year tax option, the plan participant must have been born before January 2, 1936. New taxes You can also roll over a distribution from a qualified retirement plan into a Roth IRA. New taxes 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. New taxes See Rollovers to Roth IRAs , later, for more information. New taxes Qualified retirement plan. New taxes   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. New taxes The CSRS, FERS, and TSP are considered qualified retirement plans. New taxes Distributions eligible for rollover treatment. New taxes   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. New taxes You cannot roll over any part of your CSRS or FERS annuity payments. New taxes   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. New taxes   In addition, a distribution to your beneficiary generally is not treated as an eligible rollover distribution. New taxes However, see Qualified domestic relations order (QDRO) and Rollovers by surviving spouse , and Rollovers by nonspouse beneficiary , later. New taxes Direct rollover option. New taxes   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. New taxes   There is an automatic rollover requirement for mandatory distributions. New taxes A mandatory distribution is a distribution made without your consent and before you reach age 62 or normal retirement age, whichever is later. New taxes The automatic rollover requirement applies if the distribution is more than $1,000 and is an eligible rollover distribution. New taxes 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. New taxes If you do not make this choice, OPM will automatically roll over the distribution into an IRA of a designated trustee or issuer. New taxes No tax withheld. New taxes   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. New taxes 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. New taxes Any part of the eligible rollover distribution paid to you is subject to withholding at a 20% rate. New taxes Direct roll over amounts from Roth contributions and its earnings do not have tax withheld because you already paid tax on those amounts. New taxes Payment to you option. New taxes   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. New taxes However, the full amount is treated as distributed to you even though you actually receive only 80%. New taxes 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. New taxes Rollovers to Roth IRAs are generally included in income. New taxes Eligible rollover distributions that are from Roth contributions do not have tax withheld because you already paid tax on those amounts. New taxes 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. New taxes 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). New taxes Earnings from those contributions may be subject to the 10% additional tax if certain conditions are not met. New taxes See Roth TSP balance , earlier. New taxes Also, see Tax on Early Distributions in Publication 575. New taxes Exception to withholding. New taxes   Withholding from an eligible rollover distribution paid to you is not required if the distributions for your tax year total less than $200. New taxes Partial rollovers. New taxes   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. New taxes See Lump-Sum Distributions in Publication 575. New taxes However, if you roll over any part of the distribution, the part you keep does not qualify for this special tax treatment. New taxes Rolling over more than amount received. New taxes   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). New taxes Example. New taxes You left government service at age 53. New taxes On February 1, 2013, you receive an eligible rollover distribution of $10,000 from you