Publication 721 - Tax Guide To U.s. Civil Service Retirement Benefits - 2011 Page 20
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31and she uses on line 3 the 360 factor for her age. After
line 3 of the Simplified Method Worksheet. The total exclu-
arriving at the $100 monthly exclusion on line 4, however,
sion may be more than the cost of the annuity.
Diane allocates it between her own annuity and that of her
Deduction of unrecovered cost. If the annuity starting
son.
date is after July 1, 1986, and the annuitant’s death occurs
To find how much of the monthly exclusion to allocate to
before all the cost is recovered tax free, the unrecovered
her own annuity, Diane multiplies the $100 monthly exclu-
cost can be claimed as a miscellaneous itemized deduc-
sion by the fraction $1,500 (her monthly annuity) over
tion (not subject to the 2%-of-adjusted-gross-income limit)
$2,000 (the total of her $1,500 and Robert’s $500 annui-
for the annuitant’s last tax year.
ties). She enters the result, $75, just below the entry space
for line 4. She completes the worksheet by entering $750
on lines 5 and 8 and $14,250 on line 9.
Survivors of Slain Public Safety Officers
A second Worksheet A (not shown) is completed for
Robert’s annuity. On line 1, he enters $5,000 as the total
Generally, if you receive survivor annuity payments as the
annuity received. Lines 2, 3, and 4 are the same as those
spouse, former spouse, or child of a public safety officer
on his mother’s worksheet. In allocating the $100 monthly
killed in the line of duty, you can exclude the payments
exclusion on line 4 to his annuity, Robert multiplies it by the
from your income. The annuity is excludable to the extent
fraction $500 over $2,000. His resulting monthly exclusion
that it is due to the officer’s service as a public safety
is $25. His exclusion for the year (line 8) is $250 and his
officer. Public safety officers include law enforcement of-
taxable annuity for the year (line 9) is $4,750.
ficers, firefighters, chaplains, ambulance crew members,
Diane and Robert only need to complete lines 10 and 11
and rescue squad members. The provision applies to a
on a single worksheet to keep track of their unrecovered
chaplain killed in the line of duty after September 10, 2001.
cost for next year. These lines are exactly as shown in the
The chaplain must have been responding to a fire, rescue,
filled-in Worksheet A for the earlier example.
or police emergency as a member or employee of a fire or
When Robert’s temporary annuity ends, the computa-
police department.
tion of the total monthly exclusion will not change. The only
The exclusion does not apply if your actions were a
difference will be that Diane will then claim the full exclu-
substantial contributing factor to the death of the officer. It
sion against her annuity alone.
also does not apply if:
•
Surviving child only. A method similar to the Simplified
The death was caused by the intentional misconduct
Method also can be used to figure the taxable and nontax-
of the officer or by the officer’s intention to cause his
able parts of a temporary annuity for a surviving child when
or her own death,
there is no surviving spouse annuity. To use this method,
•
The officer was voluntarily intoxicated at the time of
divide the deceased employee’s cost by the number of
death, or
months from the child’s annuity starting date until the date
•
the child will reach age 22. The result is the monthly
The officer was performing his or her duties in a
exclusion. (However, the monthly exclusion cannot be
grossly negligent manner at the time of death.
more than the monthly annuity payment. You can carry
over unused exclusion amounts to apply against future
The special death benefit paid to the spouse of a
annuity payments.)
!
FERS employee (see
FERS Death
Benefit, ear-
More than one child. If there is more than one child
lier) is not eligible for this exclusion.
CAUTION
entitled to a temporary annuity (and no surviving spouse
annuity), divide the cost by the number of months of pay-
Lump-Sum CSRS or FERS Payment
ments until the date the youngest child will reach age 22.
This monthly exclusion must then be allocated among the
children in proportion to their monthly annuity payments,
If a federal employee dies before retiring and leaves no
like the exclusion shown in the previous example.
one eligible for a survivor annuity, the estate or other
beneficiary will receive a lump-sum payment from the
Disabled child. If a child otherwise entitled to a tempo-
CSRS or FERS. This single payment is made up of the
rary annuity was permanently disabled at the annuity start-
regular contributions to the retirement fund plus accrued
ing date (and there is no surviving spouse annuity), that
interest, if any, to the extent not already paid to the em-
child is treated for tax purposes as receiving a lifetime
ployee.
annuity, like a surviving spouse. The child must complete
The beneficiary is taxed, in the year the lump sum is
line 3 of Worksheet A using a number in Table 1 at the
distributed or made available, only on the amount of any
bottom of the worksheet corresponding to the child’s age at
accrued interest. The taxable amount, if any, generally
the annuity starting date. If more than one child is entitled
cannot be rolled over into an IRA or other plan and is
to a temporary annuity, an allocation like the one shown
subject to federal income tax withholding at a 10% rate.
under
Surviving spouse with
child, earlier, must be made to
However, a nonspousal beneficiary making a transfer de-
determine each child’s share of the exclusion.
scribed under
Rollovers by nonspouse beneficiary
under
Exclusion limit. If your annuity starting date is after 1986,
Rollover Rules in Part II, can roll over any taxable amount.
the most that can be recovered tax free is the cost of the
In addition, the payment may qualify as a lump-sum distri-
annuity. Once the total of your exclusions equals the cost,
bution eligible for capital gain treatment or the 10-year tax
your entire annuity is taxable. If your annuity starting date
option if the plan participant was born before January 2,
is before 1987, the tax-free part of each whole monthly
1936. If the beneficiary also receives a lump-sum payment
payment remains the same each year you receive pay-
of unrecovered voluntary contributions plus interest, this
ments —even if you outlive the number of months used on
treatment applies only if the payment is received within the
Page 20
Publication 721 (2011)
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