Publication 721 - Tax Guide To U.s. Civil Service Retirement Benefits - 2002 Page 18
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28near the end of this publication. Specific instructions for
To find how much of the monthly exclusion to allocate to
Worksheet A are given in Part II under Simplified Method.
her own annuity, Diane multiplies the $100 monthly exclu-
sion by the fraction $1,500 (her monthly annuity) over
Example. Diane Greene, age 48, began receiving a
$2,000 (the total of her $1,500 and Robert’s $500 annui-
$1,500 monthly CSRS annuity in March 2002 upon the
ties). She enters the result, $75, just below the entry space
death of her husband. Her husband was a federal em-
for line 4. She completes the worksheet by entering $750
ployee when he died. She received 10 payments in 2002.
on lines 5 and 8 and $14,250 on line 9.
Her husband had contributed $36,000 to the retirement
A second Worksheet A (not shown) is completed for
plan.
Robert’s annuity. On line 1, he enters $5,000 as the total
annuity received. Lines 2, 3, and 4 are the same as those
Diane must use the Simplified Method. Her completed
on his mother’s worksheet. In allocating the $100 monthly
Worksheet A is shown on the next page. To complete line
exclusion on line 4 to his annuity, Robert multiplies it by the
3, she used Table 1 at the bottom of the worksheet and
fraction $500 over $2,000. His resulting monthly exclusion
found the number in the last column opposite the age
is $25. His exclusion for the year (line 8) is $250 and his
range that includes her age. Diane keeps a copy of the
taxable annuity for the year (line 9) is $4,750.
completed worksheet for her records. It will help her figure
Diane and Robert only need to complete lines 10 and 11
her taxable annuity in later years.
on a single worksheet to keep track of their unrecovered
Diane’s tax-free monthly amount is $100 ( line 4 of her
cost for next year. These lines are exactly as shown in the
worksheet). If she lives to collect more than 360 payments,
filled-in Worksheet A for the earlier example.
the payments after the 360th will be fully taxable. If she
When Robert’s temporary annuity ends, the computa-
dies before 360 payments have been made, a miscellane-
tion of the total monthly exclusion will not change. The only
o us i t e mi ze d de du c tio n ( n ot s ubj ec t to the
difference will be that Diane will then claim the full exclu-
2%-of-adjusted-gross-income limit) will be allowed for the
sion against her annuity alone.
unrecovered cost on her final income tax return.
Surviving child only. A method similar to the Simplified
Surviving spouse with child. If the survivor benefits in-
Method also can be used to figure the taxable and nontax-
clude both a life annuity for the surviving spouse and one
able parts of a temporary annuity for a surviving child when
or more temporary annuities for the employee’s children,
there is no surviving spouse annuity. To use this method,
an additional step is needed under the Simplified Method
divide the deceased employee’s cost by the number of
to allocate the monthly exclusion among the beneficiaries
months from the child’s annuity starting date until the date
correctly.
the child will reach age 22. The result is the monthly
Figure the total monthly exclusion for all beneficiaries by
exclusion. (However, the monthly exclusion cannot be
completing lines 2 through 4 of Worksheet A as if only the
more than the monthly annuity payment. You can carry
surviving spouse received an annuity. Then, to figure the
over unused exclusion amounts to apply against future
monthly exclusion for each beneficiary, multiply line 4 of
annuity payments.)
the worksheet by a fraction. For any beneficiary, the nu-
merator (top number) of the fraction is that beneficiary’s
More than one child. If there is more than one child
monthly annuity and the denominator (bottom number) of
entitled to a temporary annuity (and no surviving spouse
the fraction is the total of the monthly annuity payments to
annuity), divide the cost by the number of months of pay-
all the beneficiaries.
ments until the date the youngest child will reach age 22.
This monthly exclusion must then be allocated among the
The ending of a child’s temporary annuity does not
children in proportion to their monthly annuity payments,
affect the total monthly exclusion figured under the Simpli-
like the exclusion shown in the previous example.
fied Method. The total exclusion merely needs to be reallo-
cated at that time among the remaining beneficiaries. If
Disabled child. If a child otherwise entitled to a tempo-
only the surviving spouse is left drawing an annuity, the
rary annuity was permanently disabled at the annuity start-
surviving spouse is entitled to the entire monthly exclusion
ing date (and there is no surviving spouse annuity), that
as figured in the worksheet.
child is treated for tax purposes as receiving a lifetime
annuity, like a surviving spouse. The child must complete
Example. The facts are the same as in the example for
line 3 of Worksheet A using a number in Table 1 at the
Diane Greene in the preceding discussion except that the
bottom of the worksheet corresponding to the child’s age at
Greenes had a son, Robert, who was age 15 at the time of
the annuity starting date. If more than one child is entitled
his father’s death. Robert is entitled to a $500 per month
to a temporary annuity, an allocation like the one shown
temporary annuity until he reaches age 18 (age 22, if he
under Surviving spouse with child, earlier, must be made to
remains a full-time student and does not marry).
determine each child’s share of the exclusion.
In completing Worksheet A (not shown), Diane fills out
the entries through line 4 exactly as shown in the filled-in
Exclusion limit. If your annuity starting date is after 1986,
worksheet for the earlier example. That is, she includes on
the most that can be recovered tax free is the cost of the
line 1 only the amount of the annuity she herself received
annuity. Once the total of your exclusions equals the cost,
and she uses on line 3 the 360 factor for her age. After
your entire annuity is taxable. If your annuity starting date
arriving at the $100 monthly exclusion on line 4, however,
is before 1987, the tax-free part of each whole monthly
Diane allocates it between her own annuity and that of her
payment remains the same each year you receive pay-
son.
ments — even if you outlive the number of months used on
Page 18
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