Publication 721 - Tax Guide To U.s. Civil Service Retirement Benefits

same tax year. For more information, see Lump-Sum Dis-

Worksheet D. Lump-Sum Payment

tributions in Publication 575.

at End of Survivor Annuity —

Example

Lump-sum payment at end of survivor annuity. If an

annuity is paid to the federal employee’s survivor and the

1. Enter the lump-sum payment . . . . . . . 1.

38,400

survivor annuity ends before an amount equal to the de-

2. Enter the amount of annuity previously

ceased employee’s contributions plus any interest has

received tax free . . . . . . . . . . . . . . . . 2.

1,000

been paid out, the rest of the contributions plus any interest

3. Add lines 1 and 2 . . . . . . . . . . . . . . . 3.

39,400

will be paid in a lump sum to the employee’s estate or other

4. Enter the employee’s total cost . . . . . . 4.

45,000

beneficiary. Generally, this beneficiary will not have to

5. Taxable amount. Subtract line 4 from

include any of the lump sum in gross income because,

line 3. Enter the result, but not less

when it is added to the amount of the annuity previously

than zero . . . . . . . . . . . . . . . . . . . . . 5.

received that was excludable, it still will be less than the

employee’s total contributions.

Voluntary contributions. If a CSRS employee dies

Any unrecovered cost is allowed as a miscellaneous

before retiring from government service, any voluntary

itemized deduction on the final return of the annuitant. This

contributions to the retirement fund cannot be used to

deduction is not subject to the 2%-of-adjusted-

provide an additional annuity to the survivors. Instead, the

gross-income limit.

voluntary contributions plus any accrued interest will be

To figure the taxable amount, if any, use the

paid in a lump sum to the estate or other beneficiary. The

following worksheet.

beneficiary generally must include any interest received in

income for the year distributed or made available. How-

ever, if the beneficiary is the employee’s surviving spouse

(or someone other than the employee’s spouse making a

Worksheet D. Lump-Sum Payment

transfer described under

Rollovers by nonspouse benefi-

at End of Survivor

ciary

under Rollover Rules in Part II), the interest can be

Annuity

rolled over. See also

Rollovers by surviving spouse

under

Rollover Rules in Part II.

Keep for Your Records

The interest, if not rolled over, generally is subject to

1. Enter the lump-sum payment . . . . . . . 1.

federal income tax withholding at a 20% rate (or 10% rate if

2. Enter the amount of annuity previously

the beneficiary is not the employee’s surviving spouse). It

received tax free . . . . . . . . . . . . . . . . 2.

may qualify as a lump-sum distribution eligible for capital

3. Add lines 1 and 2 . . . . . . . . . . . . . . . 3.

gain treatment or the 10-year tax option if:

4. Enter the employee’s total cost . . . . . . 4.

•

The plan participant was born before January 2,

5. Taxable amount. Subtract line 4 from

line 3. Enter the result, but not less

1936,

than zero . . . . . . . . . . . . . . . . . . . . . 5.

•

Regular annuity benefits cannot be paid under the

retirement system, and

The taxable amount, if any, generally cannot be rolled

•

over into an IRA or other plan and is subject to federal

The beneficiary also receives a lump-sum payment

of the regular contributions plus interest within the

income tax withholding at a 10% rate. However, a non-

same tax year as the voluntary contributions.

spousal beneficiary making a transfer described under

Rollovers by nonspouse beneficiary

under Rollover Rules

For more information, see Lump-Sum Distributions in

in Part II, can roll over any taxable amount. In addition, the

Publication 575.

payment may qualify as a lump-sum distribution eligible for

capital gain treatment or the 10-year tax option if the plan

Thrift Savings Plan

participant was born before January 2, 1936. If the benefi-

ciary also receives a lump-sum payment of unrecovered

voluntary contributions plus interest, this treatment applies

The payment you receive as the beneficiary of a dece-

only if the payment is received within the same tax year.

dent’s Thrift Savings Plan (TSP) account is fully taxable.

For more information, see Lump-Sum Distributions in Pub-

However, if you are the decedent’s surviving spouse (or

lication 575.

someone other than the employee’s spouse making a

transfer described under

Rollovers by nonspouse benefi-

Example. At the time of your brother’s death in Decem-

ciary

in Part II under Rollover Rules ), you generally can roll

ber 2010, he was employed by the Federal Government

over the payment tax free. If you do not choose a direct

and had contributed $45,000 to the CSRS. His widow

rollover of the decedent’s TSP account, mandatory 20%

received $6,600 in survivor annuity payments before she

income tax withholding will apply. For more information,

died in 2011. She had used the Simplified Method for

see

Rollover Rules

in Part II. If you are neither the surviving

reporting her annuity and properly excluded $1,000 from

spouse nor someone other than the employee’s spouse

gross income.

making a transfer described above, the payment is not

eligible for rollover treatment. The TSP will withhold 10% of

Only $6,600 of the guaranteed amount of $45,000 (your

the payment for federal income tax, unless you gave the

brother’s contributions) was paid as an annuity, so the

TSP a Form W-4P to choose not to have tax withheld.

balance of $38,400 was paid to you in a lump sum as your

brother’s sole beneficiary. You figure the taxable amount of

If the entire TSP account balance is paid to the benefi-

this payment as follows.

ciaries in the same calendar year, it may qualify as a

Page 22

Publication 721 (2011)

Publication 721 - Tax Guide To U.s. Civil Service Retirement Benefits - 2011 Page 22

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