Publication 721 - Tax Guide To U.s. Civil Service Retirement Benefits - 2011 Page 19
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31Additional information about this program is also
the same, even if your annuity is increased. However, see
available on the BJA website at
Exclusion
limit, later.
Surviving spouse with no children receiving annuities.
Under the Simplified Method, you figure the tax-free part of
each full monthly annuity payment by dividing the em-
FERS Death Benefit
ployee’s cost by a number of months based on your age.
This number will differ depending on whether your annuity
You may be entitled to a special FERS death benefit if you
starting date is before November 19, 1996, or after Novem-
were the spouse of an active FERS employee who died
ber 18, 1996. To use the Simplified Method, complete
after at least 18 months of federal service. At your option,
Worksheet
A. Specific instructions for Worksheet A are
you can take the benefit in the form of a single payment or
given in Part II under
Simplified
Method.
in the form of a special annuity payable over a 3-year
period.
Example. Diane Green, age 48, began receiving a
The tax treatment of the special death benefit depends
$1,500 monthly CSRS annuity in March 2011 upon the
on the option you choose and whether a FERS survivor
death of her husband. Her husband was a federal em-
annuity is also paid.
ployee when he died. She received 10 payments in 2011.
If you choose the single payment option, use the follow-
Her husband had contributed $36,000 to the retirement
ing rules.
plan.
•
Diane must use the Simplified Method. Her completed
If a FERS survivor annuity is not paid, at least part of
Worksheet A is shown on the next page. To complete line
the special death benefit is tax free. The tax-free part
3, she used Table 1 at the bottom of the worksheet and
is an amount equal to the employee’s FERS contri-
found that 360 is the number in the last column opposite
butions.
the age range that includes her age. Diane keeps a copy of
•
If a FERS survivor annuity is also paid, all of the
the completed worksheet for her records. It will help her
special death benefit is taxable. You cannot allocate
figure her taxable annuity in later years.
any of the employee’s FERS contributions to the
Diane’s tax-free monthly amount is $100 (line 4 of her
special death benefit.
worksheet). If she lives to collect more than 360 payments,
the payments after the 360th will be fully taxable. If she
If you choose the 3-year annuity option, at least part of
dies before 360 payments have been made, a miscellane-
each monthly payment is tax free. Use the following rules.
ous itemized deduction (not subject to the
2%-of-adjusted-gross-income limit) will be allowed for the
•
If a FERS survivor annuity is not paid, the tax-free
unrecovered cost on her final income tax return.
part of each monthly payment is an amount equal to
the employee’s FERS contributions divided by 36.
Surviving spouse with child. If the survivor benefits in-
clude both a life annuity for the surviving spouse and one
•
If a FERS survivor annuity is also paid, allocate the
or more temporary annuities for the employee’s children,
employee’s FERS contributions between the 3-year
an additional step is needed under the Simplified Method
annuity and the survivor annuity. Make the allocation
to allocate the monthly exclusion among the beneficiaries
in the same proportion that the expected return from
correctly.
each annuity bears to the total expected return from
Figure the total monthly exclusion for all beneficiaries by
both annuities. Divide the amount allocated to the
completing lines 2 through 4 of Worksheet A as if only the
3-year annuity by 36. The result is the tax-free part
surviving spouse received an annuity. Then, to figure the
of each monthly payment of the 3-year annuity.
monthly exclusion for each beneficiary, multiply line 4 of
the worksheet by a fraction. For any beneficiary, the nu-
merator of the fraction is that beneficiary’s monthly annuity
CSRS or FERS Survivor Annuity
and the denominator is the total of the monthly annuity
payments to all the beneficiaries.
If you receive a CSRS or FERS survivor annuity, you can
The ending of a child’s temporary annuity does not
recover the employee’s cost tax free. The employee’s cost
affect the total monthly exclusion figured under the Simpli-
is the total of the retirement plan contributions that were
fied Method. The total exclusion merely needs to be reallo-
taken out of his or her pay.
cated at that time among the remaining beneficiaries. If
How you figure the tax-free recovery of the cost de-
only the surviving spouse is left drawing an annuity, the
pends on your annuity starting date. This is the day after
surviving spouse is entitled to the entire monthly exclusion
the date of the employee’s death. The methods to use are
as figured in the worksheet.
the same as those described near the beginning of Part II
under
Recovering your cost tax
free.
Example. The facts are the same as in the example for
The following discussions cover only the Simplified
Diane Green in the preceding discussion except that the
Method. You can use this method if your annuity starting
Greens had a son, Robert, who was age 15 at the time of
date is after July 1, 1986. You must use this method if your
his father’s death. Robert is entitled to a $500 per month
annuity starting date is after November 18, 1996. Under
temporary annuity until he reaches age 18 (age 22, if he
the Simplified Method, each of your monthly annuity pay-
remains a full-time student and does not marry).
ments is made up of two parts: the tax-free part that is a
In completing Worksheet A (not shown), Diane fills out
return of the employee’s cost and the taxable part that is
the entries through line 4 exactly as shown in the filled-in
the amount of each payment that is more than the part that
worksheet for the earlier example. That is, she includes on
represents the employee’s cost. The tax-free part remains
line 1 only the amount of the annuity she herself received
Publication 721 (2011)
Page 19
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