How To Report Benefits

If you received annuity benefits that are not fully taxable, report the total received for the year on Form 1040, line 16a, or on Form 1040A, line 12a. Also, include on that line the total of any other pension plan payments (even if fully taxable, such as those from the TSP) that you received during the year in addition to the annuity. Report the taxable amount of these total benefits on line 16b (Form 1040) or line 12b (Form 1040A). If you use Form 4972, Tax on Lump-Sum Distributions, however, to report the tax on any amount, do not include that amount on lines 16a and 16b or lines 12a and 12b; follow the Form 4972 instructions.

If you received only fully taxable payments from your retirement, the TSP, or other pension plan, report on Form 1040, line 16b, or Form 1040A, line 12b, the total received for the year (except for any amount reported on Form 4972); no entry is required on line 16a (Form 1040) or line 12a (Form 1040A).

Part III Rules for Disability Retirement and Credit for the Elderly or the Disabled

This part of the publication is for federal employees and retirees who receive disability benefits under the CSRS, the FERS, or other federal programs. It also explains the tax credit available to certain taxpayers because of age or disability.

Disability Annuity

If you retired on disability, the disability annuity you receive from the CSRS or FERS is taxable as wages until you reach minimum retirement age. Beginning on the day after you reach minimum retirement age, your payments are treated as a retirement annuity. At that time or at any time thereafter, you can begin to recover the cost of your annuity under the rules discussed in Part II.

If you find that you could have started your recovery in an earlier year for which you have already filed a return, you can start your recovery of contributions in that earlier year by filing an amended return for that year and each succeeding year. Generally, an amended return for any year must be filed within 3 years after the due date for filing your original return for that year.

Minimum retirement age.   This is the age at which you first could receive an annuity were you not disabled. This generally is based on your age and length of service.

Retirement under the Civil Service Retirement System (CSRS).   In most cases, under the CSRS, the minimum combinations of age and service for retirement are:

• Age 55 with 30 years of service,
• Age 60 with 20 years of service,
• Age 62 with 5 years of service, or
• For law enforcement, firefighter, or air traffic controller service, age 50 with 20 years of covered service.

Retirement under the Federal Employees Retirement System (FERS).   In most cases, the minimum age for retirement under the FERS is between ages 55 and 57 with at least 10 years of service. With at least 5 years of service, your minimum retirement age cannot be older than age 62. Your minimum retirement age with at least 10 years of service is shown in Table 2.

Table 2. FERS Minimum Retirement Age (MRA) With 10 Years of Service

IF you were born in	THEN Your MRA is
1947 or earlier	55 years.
1948	55 years, 2 months.
1949	55 years, 4 months.
1950	55 years, 6 months.
1951	55 years, 8 months.
1952	55 years, 10 months.
1953 to 1964	56 years.
1965	56 years, 2 months.
1966	56 years, 4 months.
1967	56 years, 6 months.
1968	56 years, 8 months.
1969	56 years, 10 months.
1970 or later	57 years.

Your minimum retirement age with law enforcement, firefighter, or air traffic controller service is age 50 with 20 years of covered service or any age with 25 years of covered service.

How to report.   You must report all your disability annuity payments received before minimum retirement age on line 7 (Form 1040 or Form 1040A).

Withholding.   For income tax withholding purposes, a disability annuity is treated the same as a nondisability annuity. This treatment also applies to disability payments received before minimum retirement age when these payments are shown as wages on your return. See Tax Withholding and Estimated Tax in Part I, earlier.

Other Benefits

The tax treatment of certain other benefits is explained in this section.

Federal Employees' Compensation Act (FECA).   FECA payments you receive for personal injuries or sickness resulting from the performance of your duties are like workers' compensation. They are tax exempt and are not treated as disability income or annuities. However, payments you receive while your claim is being processed, including pay while on sick leave and continuation of pay for up to 45 days, are taxable.

Sick pay or disability payments repaid.   If you repay sick leave or disability annuity payments you received in an earlier year to be eligible for nontaxable FECA benefits, you can deduct the amount you repay. You can claim the deduction whether you repay the amount yourself or have the FECA payment sent directly to your employing agency or the OPM.

Claim the deduction on Schedule A (Form 1040) as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit. It is considered a business loss and may create a net operating loss if your deductions for the year are more than your income for the year. Get Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, for more information. The repayment is not eligible for the special tax credit that applies to repayments over $3,000 of amounts received under a claim of right.

If you repay sick leave or disability annuity payments in the same year you receive them, the repayment reduces the taxable sick pay or disability annuity you include in income. Do not deduct it separately.

Terrorist attack.    For tax years ending after September 10, 2001, disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies), whether outside or within the United States, are not included in income. For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks.

Military actions.   For tax years ending after September 10, 2001, disability payments for injuries incurred as a direct result of a military action involving the Armed Forces of the United States and resulting from violence or aggression against the United States or any of its allies (or threat thereof), are not included in income.

Disability resulting from military service injuries.   If you received tax-exempt benefits from the Department of Veterans Affairs for personal injuries resulting from active service in the armed forces and later receive a CSRS or FERS disability annuity for disability arising from the same injuries, you cannot treat the disability annuity payments as tax-exempt income. They are subject to the rules described earlier under Disability Annuity.

Payment for unused annual leave.   When you retire, any payment for your unused annual leave is taxed as wages in the tax year you receive the payment.

Credit for the Elderly or the Disabled

You can take the credit for the elderly or the disabled if:

• You are a qualified individual, and
• Your income is not more than certain limits.

You are a qualified individual for this credit if you are a U.S. citizen or resident and, at the end of the tax year, you are:

1. Age 65 or older, or
2. Under age 65, retired on permanent and total disability, and
   1. Received taxable disability income, and
   2. Did not reach mandatory retirement age (defined later) before the tax year.

You are retired on permanent and total disability if:

1. You were permanently and totally disabled when you retired, and
2. You retired on disability before the close of the tax year.

Even if you do not retire formally, you are considered retired on disability when you have stopped working because of your disability.

Permanently and totally disabled.   You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. A physician must certify that your condition is expected to result in death or has lasted, or can be expected to last, continuously for 12 months or more. Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit.

Physician's statement.   If you are under 65, you must have your physician complete a statement certifying that you are permanently and totally disabled on the date you retired. You must keep this statement for your tax records. You can use the Physician's Statement in the instructions for either Schedule R (Form 1040) or Schedule 3 (Form 1040A).

Mandatory retirement age.   This is the age set by your employer at which you would have had to retire if you had not become disabled. There is no mandatory retirement age for most federal employees. However, there is a mandatory retirement age for the following employees.

• An air traffic controller appointed after May 15, 1972, by the Department of Transportation or the Department of Defense generally must retire by the last day of the month in which he or she reaches age 56.
• A firefighter employed by the U.S. Government who is otherwise eligible for immediate retirement generally must retire by the last day of the month in which he or she reaches age 57 or, if later, completes 20 years of firefighter service.
• A law enforcement officer employed by the U.S. Government who is otherwise eligible for immediate retirement generally must retire by the last day of the month in which he or she reaches age 57 or, if later, completes 20 years of law enforcement service.

Figuring the credit.   If you figure the credit yourself, fill out the front of either Schedule R (if you are filing Form 1040) or Schedule 3 (if you are filing Form 1040A). Next, fill out Part III of either Schedule R or Schedule 3.

If you want the Internal Revenue Service to figure your tax and credits, including the credit for the elderly or the disabled, see Publication 967, The IRS Will Figure Your Tax, and the instructions for Schedule R (Form 1040) or Schedule 3 (Form 1040A).

More information.   For detailed information about this credit, get Publication 524.

Part IV Rules for Survivors of Federal Employees

This part of the publication is for survivors of federal employees. It explains how to treat amounts you receive because of the employee's death. If you are the survivor of a federal retiree, see Part V.

Employee earnings.   Salary or wages earned by a federal employee but paid to the employee's survivor or beneficiary after the employee's death are income in respect of the decedent. This income is taxable to the survivor or beneficiary. This treatment also applies to payments for accrued annual leave.

Dependents of public safety officers.   The Public Safety Officers' Benefits program, administered through the Bureau of Justice Assistance, provides a tax-free death benefit to eligible survivors of public safety officers whose death is the direct and proximate result of a traumatic injury sustained in the line of duty. The death benefit is not includible in the decedent's gross estate for federal estate tax purposes or the survivor's gross income for federal income tax purposes.

A public safety officer is a law enforcement officer, firefighter, or member of a public rescue squad or ambulance crew. 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 emergency as a member or employee of a fire or police department.

This program may pay survivors a temporary benefit up to $3,000 if it finds that the death of the public safety officer is one for which a final benefit will probably be paid. If there is no final payment, the recipient of the temporary benefit is liable for repayment. However, the Bureau may not require all or part of the repayment if it will cause a hardship. If that happens, that amount is tax free.

For more information on this program, you may contact the Bureau of Justice Assistance by calling 1-888-744-6513, or 202-307-0635 if you are in the metropolitan Washington, D.C., calling area.

Additional information about this program is also available on the Internet at www.ojp.usdoj.gov/BJA.

FERS Death Benefit

You may be entitled to a special FERS death benefit if you were the spouse of an active FERS employee who died after at least 18 months of federal service. At your option, you can take the benefit in the form of a single payment or in the form of a special annuity payable over a 3-year period.

The tax treatment of the special death benefit depends on the option you choose and whether a FERS survivor annuity is also paid.

If you choose the single payment option, use the following rules.

• If a FERS survivor annuity is not paid, at least part of the special death benefit is tax free. The tax-free part is an amount equal to the employee's FERS contributions.
• If a FERS survivor annuity is paid, all of the special death benefit is taxable. You cannot allocate any of the employee's FERS contributions to the special death benefit.

If you choose the 3-year annuity option, at least part of each monthly payment is tax free. Use the following rules.

• If a FERS survivor annuity is not paid, the tax-free part of each monthly payment is an amount equal to the employee's FERS contributions divided by 36.
• If a FERS survivor annuity is paid, allocate the employee's FERS contributions between the 3-year annuity and the survivor annuity. Make the allocation in the same proportion that the expected return from each annuity bears to the total expected return from both annuities. Divide the amount allocated to the 3-year annuity by 36. The result is the tax-free part of each monthly payment of the 3-year annuity.

CSRS or FERS Survivor Annuity

If you receive a CSRS or FERS survivor annuity, you can recover the employee's cost tax free. The employee's cost is the total of the retirement plan contributions that were taken out of his or her pay.

How you figure the tax-free recovery of the cost depends on your annuity starting date. This is the day after the date of the employee's death. The methods to use are the same as those described near the beginning of Part II under Recovering your cost tax free.

The following discussions cover only the Simplified Method. You can use this method if your annuity starting date is after July 1, 1986. You must use this method if your annuity starting date is after November 18, 1996. Under the Simplified Method, each of your monthly annuity payments is made up of two parts: the tax-free part that is a return of the employee's cost and the taxable part that is the amount of each payment that is more than the part that represents the employee's cost. The tax-free part remains the same, even if your annuity is increased. However, see Exclusion limit, later.

Surviving spouse with no children receiving annuities.   Under the Simplified Method, you figure the tax-free part of each full monthly annuity payment by dividing the employee's cost by a number of months based on your age. This number will differ depending on whether your annuity starting date is on or before November 18, 1996, or later. To use the Simplified Method, complete Worksheet A near the end of this publication. Specific instructions for Worksheet A are given in Part II under Simplified Method.

Example.   Diane Greene, age 48, began receiving a $1,500 monthly CSRS annuity in March 2002 upon the death of her husband. Her husband was a federal employee when he died. She received 10 payments in 2002. Her husband had contributed $36,000 to the retirement plan.

Diane must use the Simplified Method. Her completed Worksheet A is shown on the next page. To complete line 3, she used Table 1 at the bottom of the worksheet and found the number in the last column opposite the age range that includes her age. Diane keeps a copy of the completed worksheet for her records. It will help her figure her taxable annuity in later years.

Filled-In Worksheet A. Simplified Method for Diane Greene                      Keep for Your Records See the instructions in Part II of this publication under Simplified Method.

1.	Enter the total annuity payments received this year. Also, add this amount to the total for Form 1040, line 16a, or Form 1040A, line 12a				1.	$    15,000
2.	Enter your cost in the plan at the annuity starting date plus any death benefit exclusion *				2.	36,000
	Note: If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below. Otherwise, go to line 3.
3.	Enter the appropriate number from Table 1 or 2 below. Use Table 2 if your annuity starting date is after 1997 and payments are for your life and the life of your beneficiary. Otherwise use Table 1				3.	360
4.	Divide line 2 by line 3				4.	100
5.	Multiply line 4 by the number of months for which this year's payments were made. If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Otherwise go to line 6				5.	1,000
6.	Enter any amounts previously recovered tax free in years after 1986				6.	0
7.	Subtract line 6 from line 2				7.	36,000
8.	Enter the smaller of line 5 or line 7				8.	1,000
9.	Taxable amount for year. Subtract line 8 from line 1. Enter the result, but not less than zero. Also add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount on this line instead				9.	$   14,000
10.	Add lines 6 and 8				10.	1,000
11.	Balance of cost to be recovered. Subtract line 10 from line 2				11.	$   35,000
Table 1 for Line 3 Above
	IF the age at annuity starting date was		AND your annuity starting date was -
			before November 19, 1996, enter on line 3	after November 18, 1996, enter on line 3
	55 or under		300	360
	56-60		260	310
	61-65		240	260
	66-70		170	210
	71 or over		120	160
Table 2 for Line 3 Above
	IF the combined ages at annuity starting date were		THEN enter on line 3
	110 or under		410
	111-120		360
	121-130		310
	131-140		260
	141 or over		210

*A death benefit exclusion up to $5,000 applied to certain benefits received by survivors of employees who died before August 21, 1996.

Example. Diane Greene - Filled-in Worksheet A - Simplified Method

Filled-In Worksheet A. Simplified Method for Diane Greene                      Keep for Your Records See the instructions in Part II of this publication under Simplified Method.

1.	Enter the total annuity payments received this year. Also, add this amount to the total for Form 1040, line 16a, or Form 1040A, line 12a				1.	$    15,000
2.	Enter your cost in the plan at the annuity starting date plus any death benefit exclusion *				2.	36,000
	Note: If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below. Otherwise, go to line 3.
3.	Enter the appropriate number from Table 1 or 2 below. Use Table 2 if your annuity starting date is after 1997 and payments are for your life and the life of your beneficiary. Otherwise use Table 1				3.	360
4.	Divide line 2 by line 3				4.	100
5.	Multiply line 4 by the number of months for which this year's payments were made. If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Otherwise go to line 6				5.	1,000
6.	Enter any amounts previously recovered tax free in years after 1986				6.	0
7.	Subtract line 6 from line 2				7.	36,000
8.	Enter the smaller of line 5 or line 7				8.	1,000
9.	Taxable amount for year. Subtract line 8 from line 1. Enter the result, but not less than zero. Also add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount on this line instead				9.	$   14,000
10.	Add lines 6 and 8				10.	1,000
11.	Balance of cost to be recovered. Subtract line 10 from line 2				11.	$   35,000
Table 1 for Line 3 Above
	IF the age at annuity starting date was		AND your annuity starting date was -
			before November 19, 1996, enter on line 3	after November 18, 1996, enter on line 3
	55 or under		300	360
	56-60		260	310
	61-65		240	260
	66-70		170	210
	71 or over		120	160
Table 2 for Line 3 Above
	IF the combined ages at annuity starting date were		THEN enter on line 3
	110 or under		410
	111-120		360
	121-130		310
	131-140		260
	141 or over		210

*A death benefit exclusion up to $5,000 applied to certain benefits received by survivors of employees who died before August 21, 1996.

Diane's tax-free monthly amount is $100 ( line 4 of her worksheet). If she lives to collect more than 360 payments, the payments after the 360th will be fully taxable. If she dies before 360 payments have been made, a miscellaneous itemized deduction (not subject to the 2%-of-adjusted-gross-income limit) will be allowed for the unrecovered cost on her final income tax return.

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