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.
Here’s an example:
Federal Employee Annuity Calculation Tables
Table 1: Individual Annuity by Age and Starting Date
| 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 by Combined Ages
| 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 |
Someone has paid in the FERS system 35k, they retire at 62, if you are a single person then you take 35k and divide it by 260, 134.62 a month is non taxable. Basically OPM os going to be returning your non taxable 35k dollars over 260 months. If a person goes beyond 260 months then there is no longer a non taxable portion. That is if the person did not elect a survivor benefit.
If a person did elect a survivor benefit: Person has paid in $35,00 into the FERS system, they retire at 62 and their elected survivor is also aged 62, giving them a combined age of 124, they are then going to take the $35,000 and divide it by 310, $112.90 a month will be non taxable. If you are noticing something you may see, that timing can play an ever so slightly role in a person’s retirement, the lower the number is on the above IRS chart the more of your pension is non taxable. Example of this, if a person is planning on retiring at the age of 60, spouse also 60, they would divide by 360, however if they would wait just a few months for just one of them to turn 61, they would then be in the next bracket, and they would divide by 310, which would make more of their pension non taxable.
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!
