Calculating the Non-Taxable Portion of your Annuity
Question
Hi Stephen,
I just received my 1099-R from OPM. In the box that says “Taxable Annuity Amount” they write “unknown.” What in the world does that mean?
Answer
Almost all of your annuity is taxable, however a portion of your annuity is not taxable.
Which portion? The portion you’ve already paid the tax on.
Which portion is that? It’s the amount that you paid into the FERS or CSRS system. For most FERS people, it’s about 0.8% of your pay. For CSRS, it’s 7% of your pay. (For CSRS-offset, it’s 0.8% of your pay up to the Social Security Cap. Any income over the Social Security Cap has 7% go into the CSRS system. See this article about CSRS-offset.)
This amount that you paid into the FERS or CSRS system gets returned to you when you retire, and since you’ve already paid the taxes on it, you won’t need to pay the taxes again.
However, here’s where it gets tricky: OPM does not give you this money back all at once. They stretch it over your life expectancy, or your joint life expectancy if you also elected a survivor annuity.
Example: Assuming someone has paid in the FERS system $35,000 and is retiring at age 62. We will need to divide the $35,000 by the factor that corresponds to their age at retirement in the table below.
Federal Employee Annuity Calculation Tables
Table 1: Individual Annuity, No Survivor Benefit
| Age on Annuity Starting Date | Annuity Starting Date | |
|---|---|---|
| Before November 19, 1996 | After November 19, 1996 | |
| 55 or under | 300 | 360 |
| 56-60 | 260 | 310 |
| 61-65 | 240 | 260 |
| 66-70 | 170 | 210 |
| 71 or over | 120 | 160 |
Table 2: Joint Annuity, with Survivor Benefit
| Combined Ages of Annuitants on Starting Date | Multiplier |
|---|---|
| 110 or under | 410 |
| 111-120 | 360 |
| 121-130 | 310 |
| 131-140 | 260 |
| 141 or over | 210 |
If survivor benefit is NOT elected: if a survivor benefit is not elected, divide the $35,000 by 260. $35,000/260 = $134.62 a month ($1,615.44/yr) is non-taxable. Basically OPM will be returning your non-taxable $35,000 over 260 months. If a person lives beyond 260 months, then there is no longer a non-taxable portion.
If survivor benefit is elected: if a survivor benefit is elected, we need to divide the $35,000 by the factor that corresponds to their combined ages. Assuming the retiree is age 62 and their spouse is also age 62, they have combined age of 124. According to the table above, the factor for the combined age of 124 is 310. $35,000/310 = $112.90 a month ($1,354.80/yr) is non-taxable. Basically, OPM will be returning your non-taxable $35,000 over 310 months. If the couple lives beyond 310 months, then there is no longer a non-taxable portion.
Will OPM do the math for you? No. Not in the first year of retirement, but in the 2nd year and onwards they do.
Every year in retirement you will receive a 1099-R. In the first year of retirement, the 1099-R will say “unknown” in the box that says “Taxable Annuity Amount.” Why OPM can’t do this math for you is beyond me. However, starting in the 2nd year of retirement, they will give you a “Taxable Annuity Amount.” Phew!
How to calculate your “Taxable Annuity Amount” on your own:
In order to calculate your “Taxable Annuity Amount” you will need to know your “cumulative FERS contributions.” This is the amount that you paid into theFERS (or CSRS) retirement system over your career.
Where to find your cumulative FERS contributions?
Finding your lifetime FERS contributions may feel like a federal scavenger hunt. Your paystub may have it (DFAS box #19) but that number will only be correct if you’ve worked at the same agency your entire career and they used the same payroll provider your entire career. If both of those didn’t happen, the number on your paystub will not be accurate.
Here’s are a couple alternative methods of calculating your “cumulative FERS contributions.”
- The DIY Method: Pull your Social Security statements. Add up all your federal income from the beginning of your federal career until retirement. Multiply by 0.008. That’s your approximate FERS contributions. (CSRS offset can also use their SS statements, but CSRS didn’t pay into SS so this method won’t work for CSRS.)
- The Phone Marathon:
- OPM Retirement: 1-888-767-6738
- National Personnel Records Center: 314-801-0800
- Your agency before you separate:
- Request your complete FERS contribution history from your HR before it’s too late.
I hope this helps!
