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

Worksheet B. Lump-Sum Payment for David Brown

See the instructions in Part II of this publication under

Alternative Annuity

Option.

1. Enter your lump-sum credit (your cost in the plan at the annuity starting date) . . . . . . . . . . . . . . . 1.

31,000

2. Enter the present value of your annuity contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.

155,000

3. Divide line 1 by line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.

.20

4. Tax-free amount. Multiply line 1 by line 3. (Caution: Do not include this amount on line 6 of

Worksheet A in this publication.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.

6,200

5. Taxable amount (net cost in the plan). Subtract line 4 from line 1. Include this amount in the total

on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Also, enter this amount

on line 2 of Worksheet A in this publication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.

24,800

If you receive the lump-sum payment in two install-

those rules, you do not reduce your cost in the plan (Work-

ments, include any interest paid with the second install-

sheet A, line 2) by the tax-free part of the lump-sum

ment on line 8a of either Form 1040 or Form 1040A, or on

payment. However, you must include that tax-free amount

line 9a of Form 1040NR.

with other amounts previously recovered tax free (Work-

sheet A, line 6) when limiting your total exclusion to your

total cost.

Reduced Annuity

Federal Gift Tax

If you have chosen to receive a lump-sum payment under

the alternative annuity option, you also will receive reduced

If, through the exercise or nonexercise of an election or

monthly annuity payments. These annuity payments each

option, you provide an annuity for your beneficiary at or

will have a tax-free and a taxable part. To figure the

after your death, you have made a gift. The gift may be

tax-free part of each annuity payment, you must use the

taxable for gift tax purposes. The value of the gift is equal

Simplified Method (Worksheet A). For instructions on how

to the value of the annuity.

to complete the worksheet, see

Worksheet A

under Simpli-

fied Method, earlier.

Joint and survivor annuity. If the gift is an interest in a

To complete Worksheet A, line 2, you must reduce your

joint and survivor annuity where only you and your spouse

cost in the plan by the tax-free part of the lump-sum

can receive payments before the death of the last spouse

payment you received. Enter as your net cost on line 2 the

to die, the gift generally will qualify for the unlimited marital

amount from Worksheet B, line 5. Do not include the

deduction. This will eliminate any gift tax liability with re-

tax-free part of the lump-sum payment with other amounts

gard to that gift.

recovered tax free (Worksheet A, line 6) when limiting your

If you provide survivor annuity benefits for someone

total exclusion to your total cost.

other than your current spouse, such as your former

Example. The facts are the same as in the example for

spouse, the unlimited marital deduction will not apply. This

may result in a taxable gift.

David Brown in the preceding discussion. In addition,

David received 10 annuity payments in 2011 of $1,200

More information. For information about the gift tax,

each. Using Worksheet A, he figures the taxable part of his

see Publication 950, Introduction to Estate and Gift Taxes,

annuity payments. He completes line 2 by reducing his

and Form 709, United States Gift (and Genera-

$31,000 cost by the $6,200 tax-free part of his lump-sum

tion-Skipping Transfer) Tax Return, and its instructions.

payment. His entry on line 2 is his $24,800 net cost in the

plan (the amount from Worksheet B, line 5). He does not

Retirement During the Past Year

include the tax-free part of his lump-sum payment on

Worksheet A, line 6. David’s filled-in Worksheet A is shown

If you have recently retired, the following discussions cov-

on the next page.

ering annual leave, voluntary contributions, and commu-

Reemployment after choosing the alternative

nity property may apply to you.

annuity option. If you chose this option when

you retired and then you were reemployed by the

Annual leave. A payment for accrued annual leave re-

CAUTION

Federal Government before retiring again, your Form CSA

ceived on retirement is a salary payment. It is taxable as

1099R may show only the amount of your contributions to

wages in the tax year you receive it.

your retirement plan during your reemployment. If the

amount on the form does not include all your contributions,

Voluntary contributions. Voluntary contributions to the

disregard it and use your total contributions to figure the

retirement fund are those made in addition to the regular

taxable part of your annuity payments.

contributions that were deducted from your salary. They

Annuity starting date before November 19, 1996. If

also include the regular contributions withheld from your

your annuity starting date is before November 19, 1996,

salary after you have the years of service necessary for the

maximum annuity allowed by law. Voluntary contributions

and you chose the alternative annuity option, the taxable

and tax-free parts of your lump-sum payment and your

are not the same as employee contributions to the Thrift

Savings Plan. See

Thrift Savings

Plan, later.

annuity payments are figured using different rules. Under

Publication 721 (2011)

Page 9

Publication 721 - Tax Guide To U.s. Civil Service Retirement Benefits - 2011 Page 9

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