Ask The Experts: Retirement

By Reg Jones

Annuity taxes

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Q. I’m a recent federal retiree and I’m trying to project my income for the year. Is the starting point for the taxable portion of my monthly annuity the amount before or the amount after the survivor’s benefit is deducted? From what I gather from IRS Pub 721, the deduction is a pre-tax deduction, but it lowers the tax-free portion amount of my monthly annuity. Is this correct? Read the rest of this entry »

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TSP and taxes

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Q. I intend to make a lump-sum payment this year to pay off the balance owed to recapture my military service for inclusion of this time toward my FERS retirement. I am paying it with after-tax dollars I have saved. Can this amount be claimed as a tax credit or claimed as a tax deduction? Which document says what can be claimed or that neither can be claimed?

A. No. It can neither be claimed as a tax credit nor a tax deduction.

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WEP

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Q. I would like to know who is responsible for informing employees who work for the government of the windfall elimination provision. I was not told about the WEP until I went to the Social Security office to file for my Social Security retirement. My Social Security benefits were reduced by more than $1,000 per month. I worked hard all my life with two jobs for over 30 years. For what? Just to have my benefits go to someone who did not work but gets benefits. How are you to be informed of this law?

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Drawing from spouse’s retirement

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Q. I retired from CSRS on disability. I have my 40 quarters. My wife is retired from Social Security. Can I draw from her account at age 62?

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COLA and relocation

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Q. I’m currently employed as a U.S. Probation Officer for the federal judiciary. I recently volunteered to relocate to another office within the same agency/district. My new office (New Bern, NC) has a lower cost-of-living adjustment than my previous office (Raleigh, NC). Due to short notice, I was unable to sell my home in Raleigh prior to moving to New Bern. As a result, I continue to pay a mortgage and properties taxes at my previous duty station, Raleigh. The federal judiciary did not authorize any relocation expenses. However, I’m looking for literature governing COLA disbursements for situations similar to mine. Specifically, although relocation expenses were not authorized by my agency, am I entitled to maintain my COLA in Raleigh until my house sells in Raleigh?

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CSRS annuity, other income and taxes

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Q. I plan to retire this year and start my own business. I am CSRS Offset and 55 years old. How will any income I make from my business affect my pension and taxes?

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CSRS retirement benefit and state taxes

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Q. Is the CSRS retirement benefit taxable in Massachusetts?

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Military buyback, bonus and taxes

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Q. I am interested about buying back my military time. However, I received a separation bonus from the military when I left. How is the buyback calculated in addition to my time in service? (Is it considered normal income?)

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VSIP eligibility

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Q. I will complete nine years of civil service as of August, as well as 22 years of military service. If I apply for Voluntary Separation Incentive Pay, what, if anything, can I expect to receive?

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Tax benefits of buyback

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Q. What are the tax benefits, if any, for buying back my military time into my FERS? In 2012, I paid close to $11,000 to buy back my military time into my FERS. Now I’m finishing up my 2012 taxes and I’m curious if there is any kind of adjustment/deduction for having shelled out $11,000 toward retirement?

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Post-1956 deposit

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Q. The following statement was made in an answer to a question ask about post-1956 deposit: “You can’t get a refund of the deposit you made for your active-duty service. What’s done is done. If you retire at age 62 and aren’t eligible for a Social Security benefit at that time, you’ll never have to worry about losing those years and having your annuity recomputed.”

I will retire at age 60 and have paid in a post-1956 deposit. I am in CSRS and will have 41 years and eight months with the post-56 deposit (eight years, six months of military service). I have worked for 40 quarters and am eligible for Social Security (military service and work prior to the military). However, due to the windfall elimination provision, I do not plan to ask for Social Security benefits until I am 65 or older. Will my annuity be recomputed after I reach 62 even though I have no intention of requesting my Social Security benefit until 65 or 70? Can I expect some kind of reduction in my annuity? I understand my Social Security benefit will be reduced by two-thirds once I apply for it.

A. Because you made a deposit for your active-duty service, you’ll not only get credit for that time in your annuity computation but your CSRS annuity won’t be affected no matter when you apply for a Social Security benefit. However, as you noted, your Social Security benefit will be reduced because of the windfall elimination provision. That’s because you will be receiving an annuity from a retirement system where you didn’t pay Social Security taxes and have fewer than 30 years of substantial earnings under Social Security.

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Taxes

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Q. How does my dad change the amount of taxes to be taken out on his civil service retirement check? He is not taking out enough and is getting penalized.

A. Have him call the Office of Personnel Management at 1-888-767-6738 or 724-794-2005 and talk to one of the benefits specialists.

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CSRS Offset

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Q. I worked for an independent federal agency from 1977 to 1989, which had its own retirement system that was neither CSRS nor FERS. I had a break in service for one year then returned to work for the federal government (Transportation Department), where I was erroneously placed in FERS by human resources. In 2006, following a FERCCA ruling that took over 2½ years, I chose to be placed in CSRS Offset rather than FERS. I paid Social Security as a federal employee (plus through part-time jobs dating back to 1970) until I retired in 2010 with 32 years of service. I was told I would receive a reduction to my pension and/or Social Security at age 62 due to the offset. I have also read that there will be no reduction because I have more than 30 quarters of Social Security. Should I file for Social Security at age 62 since I will receive a possible reduction, or will I receive no reduction in Social Security benefits?

A. Because you are a CSRS Offset retiree, at age 62, your annuity will automatically be reduced by the amount of Social Security benefit you earned while a CSRS Offset employee. Further, you may be subject to the windfall elimination provision, which reduces the Social Security benefit of anyone receiving an annuity in whole or part from a retirement system where he didn’t pay Social Security taxes and has fewer than 30 years (not 30 quarters) of substantial earnings under Social Security. To see how that might apply to you, go to http://ssa.gov/pubs/10045.html.

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Social Security eligibility

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Q. I am 67 years old, employed as a federal civil servant with 35 years of service this year.  Can I collect Social Security benefits? What effect will that have on my retirement? I was under CSRS until FERS came into existence. I switched to FERS, believing I would not stay in civil service and wanted to pay Social Security taxes. It worked out that I did stay in the government, so I should have a portion of CSRS (about eight years) and the rest under FERS when I retire.

A. Because you have reached full Social Security retirement age, you can continue working and receive a Social Security benefit. However, that benefit will be affected by the windfall elimination provision. The WEP reduces the Social Security benefit of anyone who receives an annuity — in whole or part — from a retirement system, such as CSRS, where he didn’t pay Social Security taxes and has fewer than 30 years of substantial earnings under Social Security.

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State taxes

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Q. I retired Jan. 3 with 31 years of federal service. I just moved to North Carolina. Could you tell me if I have to pay state taxes for North Carolina?

A. In North Carolina, annuities aren’t taxed beginning with 1998 if you had five years of creditable government service as of Aug. 12, 1989.

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Alternate form of annuity

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Q. I am anticipating retiring Jan. 3 after almost 40 years of continuous service for the Veterans Affairs Department. I recall, many years ago, retirees electing withdrawal of their cumulative contributions to the retirement fund and receiving a minimum penalty in their annuity. I am unable to find anything online relating to this option and my human resources people say they’ve never heard of it. When did we lose this option?

On that subject, my earnings and leave do not reflect the total amount that I have contributed to the retirement fund, but only the amount contributed since conversion to the Defense Finance and Accounting Services. I’m told “they never figured out a way to convert the figures from the old system.” Other than searching through my attic for old E&L records, and adding the two figures, where can I find the amount of my total contribution?

Also, I’ve read where under Obamacare, congressmen and their staffs will no longer be under Federal Employees Health Benefits after January 2014 and will have to go under a state program. Is there any plan to move federal employees and retirees also?

A. You are referring to the alternative form of annuity. When it became law in 1986, it allowed a retiree to receive a tax-free payment of his contributions to the retirement system and accept a reduced annuity.

However, Public Law 103-66 eliminated this lump-sum option for everyone other than those employees who have a life expectancy of less than two years and who are not retiring on disability.

When you retire, the Office of Personnel Management will provide you with the exact amount of money you have contributed to the retirement fund. I’m not aware of any way you could get that figure now.

Finally, there is no plan to move federal employees to a state program or anywhere else, for that matter.

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Treasury’s contribution to annuity

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Q. What is the percentage paid by the U.S. Treasury toward our monthly annuity account when we retire under CSRS?

A. It’s not surprising that no one could answer the question, because there isn’t any one answer. It all depends. If an employee retired before June 2, 1986, all of his annuity payments were considered to be a return of his retirement contributions and weren’t taxable, since they had already been taxed as income while he was working. When the amount in his account ran out, all of the annuity payments he received were from the government and, as such, 100 percent taxable. If he retired after that date, the amount he received in each annuity payment depended on two things: first, if he was filing under the general rule or the simplified rule; second, his age at retirement. A third factor was added shortly thereafter: whether he re-elected a survivor annuity and in what amount. To learn more about this mare’s nest of rules, go to www.irs.gov and download a copy of IRS Publication 721, Tax Guide to U.S. Civil Service Retirement benefits.

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Pretax FEHB exclusion

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Q. Is the pretax Federal Employees Health Benefits exclusion still available after retirement?

A. No.

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Tax forms for retiree

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Q. I have not received a 1099 for a federal retirement yet for 2012. What number or website can I contact to receive a duplicate copy?

A. Call the Office of Personnel Management at 888-767-6738 or 724-794-2005 and talk to one of its benefits specialists.

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Jan. 1, 1983

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Q. I am reading in a Blue Cross/Blue Shield brochure that you have to be a federal employee as of Jan. 1, 1983, to get free Medicare Part A. I joined in March 1983 and do not have Social Security eligibility. Will I get Part A for free or not? What is the significance of Jan. 1, 1983?

A. Here’s the scoop from the Social Security Administration: “Federal employees are required to contribute to the Medicare Trust Fund and are therefore eligible for Medicare. This provision is referred to as the Medicare Qualified Government Employees (MQGE) provision.

“All wages paid to Federal employees after Dec. 31, 1982, are taxed for health insurance, and through payment of this tax, employees earn Government Employment Quarters of Coverage (GEQCs). GEQCs can be used only for Medicare purposes. These GEQCs are counted toward Medicare coverage only and do not count toward entitlement to Social Security benefits.

“Federal employees need the same number of total QCs to qualify for Medicare as they need to qualify for Social Security insured status.

“However, under a transitional provision in the law, any Federal employee who was an employee at any time during January 1983 and was employed before Jan. 1, 1983, may be granted GEQCs for Federal service prior to January 1983.”

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