Publication 721 - Tax Guide To U.s. Civil Service Retirement Benefits - 2002 Page 20
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28line 3 of the Simplified Method Worksheet. The total exclu-
gain treatment or the 10-year tax option. If the beneficiary
sion may be more than the cost of the annuity.
also receives a lump-sum payment of unrecovered volun-
tary contributions plus interest, this treatment applies only
Deduction of unrecovered cost. If the annuity starting
if the payment is received within the same tax year. For
date is after July 1, 1986, and the annuitant’s death occurs
more information, see Lump-Sum Distributions in Publica-
before all the cost is recovered tax free, the unrecovered
tion 575.
cost can be claimed as a miscellaneous itemized deduc-
tion (not subject to the 2%-of-adjusted-gross-income limit)
Lump-sum payment at end of survivor annuity. If an
for the annuitant’s last tax year.
annuity is paid to the federal employee’s survivor and the
survivor annuity ends before an amount equal to the de-
Survivors of Slain Public Safety Officers
ceased employee’s contributions plus any interest has
been paid out, the rest of the contributions plus any interest
Generally, if you receive survivor annuity payments after
will be paid in a lump sum to the employee’s estate or other
2001 as the spouse, former spouse, or child of a public
beneficiary. Generally, this beneficiary will not have to
safety officer killed in the line of duty, you can exclude the
include any of the lump sum in gross income because,
payments from your income. Payments received before
when it is added to the amount of the annuity previously
2002 could only be excluded if the officer was killed after
received that was excludable, it still will be less than the
1996. The annuity is excludable to the extent that it is due
employee’s total contributions.
to the officer’s service as a public safety officer. Public
To figure the taxable amount, if any, use the
safety officers include law enforcement officers, fire fight-
following worksheet.
ers, ambulance crew members, and rescue squad mem-
bers. A chaplain killed in the line of duty after September
10, 2001, is also a public safety officer. The chaplain must
have been responding to a fire, rescue, or police emer-
Worksheet D. Lump-Sum Payment
gency as a member or employee of a fire or police depart-
at End of Survivor Annuity
ment.
The exclusion does not apply if your actions were a
1. Enter the lump-sum payment . . . . . 1.
substantial contributing factor to the death of the officer. It
2. Enter the amount of annuity
also does not apply if:
previously received tax free . . . . . . . 2.
•
The death was caused by the intentional misconduct
3. Add lines 1 and 2 . . . . . . . . . . . . . . 3.
of the officer or by the officer’s intention to cause his
4. Enter the employee’s total cost . . . . 4.
or her own death,
•
5. Taxable amount. Subtract line 4
The officer was voluntarily intoxicated at the time of
from line 3. Enter the result, but not
death, or
less than zero . . . . . . . . . . . . . . . . . 5.
•
The officer was performing his or her duties in a
grossly negligent manner at the time of death.
The taxable amount, if any, generally cannot be rolled
over into an IRA or other plan and is subject to federal
income tax withholding at a 10% rate. It may qualify as a
The special death benefit paid to the spouse of a
lump-sum distribution eligible for capital gain treatment or
!
FERS employee (see FERS Death Benefit, ear-
the 10-year tax option. If the beneficiary also receives a
lier) is not eligible for this exclusion.
CAUTION
lump-sum payment of unrecovered voluntary contributions
plus interest, this treatment applies only if the payment is
received within the same tax year. For more information,
Lump-Sum CSRS or FERS Payment
see Lump-Sum Distributions in Publication 575.
If a federal employee dies before retiring and leaves no
Example. At the time of your brother’s death in Decem-
one eligible for a survivor annuity, the estate or other
ber 2001, he was employed by the federal government and
beneficiary will receive a lump-sum payment from the
had contributed $45,000 to the CSRS. His widow received
CSRS or FERS. This single payment is made up of the
$6,600 in survivor annuity payments before she died in
regular contributions to the retirement fund plus accrued
2002. She had used the Simplified Method for reporting
interest, if any, to the extent not already paid to the em-
her annuity and properly excluded $1,000 from gross in-
ployee.
come.
The beneficiary is taxed, in the year the lump sum is
Only $6,600 of the guaranteed amount of $45,000 (your
distributed or made available, only on the amount of any
brother’s contributions) was paid as an annuity, so the
accrued interest. The taxable amount, if any, generally
balance of $38,400 was paid to you in a lump sum as your
cannot be rolled over into an IRA or other plan and is
subject to federal income tax withholding at a 10% rate. It
brother’s sole beneficiary. You figure the taxable amount of
may qualify as a lump-sum distribution eligible for capital
this payment as follows.
Page 20
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