For tax years starting in 2010, the $100,000 modified adjusted gross income (AGI) limit on rollovers from eligible retirement plans to Roth IRAs is eliminated and married taxpayers filing a separate return can now roll over amounts to a Roth IRA.

Also, for any 2010 rollover from an eligible retirement plan (other than a designated Roth account or Roth IRA) to a Roth IRA, any amounts that would be included as income will generally be included in income in equal amounts in 2011 and 2012. You can choose to include the entire amount in income in 2010. For information on the special rules that apply for 2010 see, Special rules for 2010 rollovers from qualified retirement plans to Roth IRAs, in Part II.

Beginning in early 2010, if you are the spouse beneficiary of a decedent's TSP account, you will have the option of leaving the death benefit payment in a TSP account in your own name (a beneficiary participant account). The amounts in the beneficiary participant account are neither taxable or reportable until you choose to make a withdrawal, or otherwise receive a distribution from the account.

Special rules apply to the use of retirement funds by qualified individuals who suffered an economic loss as a result of the storms and tornadoes that began on May 4, 2007 in the Kansas disaster area and the severe storms in the Midwestern disaster areas. See Publication 575, for information on these special rules.

You can roll over certain amounts from the CSRS, FERS, or TSP, to a tax-sheltered annuity plan (403(b) plan) or a state or local government section 457 deferred compensation plan. See Rollover Rules in Part II.

You may be able to roll over a distribution you receive as the surviving spouse of a deceased employee or retiree into a qualified retirement plan or an IRA. See Rollover Rules in Part II.

A survivor annuity received by the spouse, former spouse, or child of a public safety officer killed in the line of duty generally will be excluded from the recipient's income. For more information, see Dependents of public safety officers in Part IV.

If you have a uniformed services TSP account, it may include contributions from combat zone pay. This pay is tax-exempt and contributions attributable to that pay are tax-exempt when they are distributed from the uniformed services TSP account. However, any earnings on those contributions are subject to tax when they are distributed. The statement you receive from the TSP will separately state the total amount of your distribution and the amount of your taxable distribution for the year. If you have both a civilian and a uniformed services TSP account, you should apply the rules discussed in this publication separately to each account. You can get more information from the TSP website, www.tsp.gov, or the TSP Service Office.

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

This publication explains how the federal income tax rules apply to civil service retirement benefits received by retired federal employees (including those disabled) or their survivors. These benefits are paid primarily under the Civil Service Retirement System (CSRS) or the Federal Employees' Retirement System (FERS).

Part of the annuity benefits you receive is a tax-free recovery of your contributions to the CSRS or FERS. The rest of your benefits are taxable. If your annuity starting date is after November 18, 1996, you must use the Simplified Method to figure the taxable and tax-free parts. If your annuity starting date is before November 19, 1996, you generally could have chosen to use the Simplified Method or the General Rule. See Part II, Rules for Retirees.

The Thrift Savings Plan (TSP) provides federal employees with the same savings and tax benefits that many private employers offer their employees. This plan is similar to private sector 401(k) plans. You can defer tax on part of your pay by having it contributed to your account in the plan. The contributions and earnings on them are not taxed until they are distributed to you. See Thrift Savings Plan in Part II.

We welcome your comments about this publication and your suggestions for future editions.

You can write to us at the following address:

Internal Revenue Service 
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If you have a tax question, check the information available on IRS.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

See How To Get Tax Help near the end of this publication for information about getting publications and forms.

This part of the publication contains information that can apply to most recipients of civil service retirement benefits.

If you leave federal government service or transfer to a job not under the CSRS or FERS and you are not eligible for an immediate annuity, you can choose to receive a refund of the money in your CSRS or FERS retirement account. The refund will include both regular and voluntary contributions you made to the fund, plus any interest payable.

If the refund includes only your contributions, none of the refund is taxable. If it includes any interest, the interest is taxable unless you roll it over directly into another qualified plan or a traditional individual retirement arrangement (IRA). If you do not have the Office of Personnel Management (OPM) transfer the interest to an IRA or other plan in a direct rollover, tax will be withheld at a 20% rate. See Rollover Rules in Part II for information on how to make a rollover.

If you do not roll over interest included in your refund, it may qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. If you separate from service before the calendar year in which you reach age 55, it may be subject to an additional 10% tax on early distributions. For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575.

The CSRS or FERS annuity you receive is subject to federal income tax withholding, unless you choose not to have tax withheld. OPM will tell you how to make the choice. The choice for no withholding remains in effect until you change it. These withholding rules also apply to a disability annuity, whether received before or after minimum retirement age.

If you choose not to have tax withheld, or if you do not have enough tax withheld, you may have to make estimated tax payments.

Form CSA 1099R is mailed to you by OPM each year. It will show any tax you had withheld. File a copy of Form CSA 1099R with your tax return if any federal income tax was withheld.

The choice for no withholding generally cannot be made for annuity payments to be delivered outside the United States and its possessions.

To choose no withholding if you are a U.S. citizen or resident alien, you must provide OPM with your home address in the United States or its possessions. Otherwise, OPM has to withhold tax. For example, OPM must withhold if you provide a U.S. address for a nominee, trustee, or agent (such as a bank) to whom the benefits are to be delivered, but you do not provide your own U.S. home address.

If you do not provide a home address in the United States or its possessions, you can choose not to have tax withheld only if you certify to OPM that you are not a U.S. citizen, a U.S. resident alien, or someone who left the United States to avoid tax. But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. For details, see Publication 519, U.S. Tax Guide for Aliens.

If you give OPM a Form W-4P-A, Election of Federal Income Tax Withholding, you can choose not to have tax withheld or you can choose to have tax withheld. The amount of tax withheld depends on your marital status, the number of withholding allowances, and any additional amount you designate to be withheld. If you do not make either of these choices, OPM must withhold as if you were married with three withholding allowances.

If you leave the federal government before becoming eligible to retire and you apply for a refund of your CSRS or FERS contributions, or you die without leaving a survivor eligible for an annuity, you or your beneficiary will receive a distribution of your contributions to the retirement plan plus any interest payable. Tax will be withheld at a 20% rate on the interest distributed. However, tax will not be withheld if you have OPM transfer (roll over) the interest directly to your traditional IRA or other qualified plan. If you have OPM transfer (roll over) the interest directly to a Roth IRA, the entire amount will be taxed in the current year. However, for any rollover in 2010, there are special rules. See Special rules for 2010 rollovers from qualified retirement plans to Roth IRAs in Part II. Because no income tax will be withheld at the time of the transfer, you may want to increase your withholding or pay estimated taxes. See Rollover Rules in Part II. If you receive only your contributions, no tax will be withheld.

Generally, a distribution that you receive from the TSP is subject to federal income tax withholding. The amount withheld is:

• 20% if the distribution is an eligible rollover distribution, or
• 10% if it is a nonperiodic distribution other than an eligible rollover distribution, or
• An amount determined as if you were married with three withholding allowances, unless you submit a withholding certificate (Form W-4P), if it is a periodic distribution.

 
However, you usually can choose not to have tax withheld from TSP payments other than eligible rollover distributions. By January 31 after the end of the year in which you receive a distribution, the TSP will issue Form 1099-R showing the total distributions you received in the prior year and the amount of tax withheld.

For a detailed discussion of withholding on distributions from the TSP, see Important Tax Information About Payments From Your TSP Account, available from your agency personnel office or from the TSP.

Generally, you must make estimated tax payments for 2011 if you expect to owe at least $1,000 in tax for 2011 (after subtracting your withholding and credits) and you expect your withholding and your credits to be less than the smaller of:

• 90% of the tax to be shown on your income tax return for 2011, or
• 100% of the tax shown on your 2010 income tax return (110% of that amount if the adjusted gross income shown on the return was more than $150,000 ($75,000 if your filing status for 2011 will be married filing separately)). The return must cover all 12 months.

You do not have to pay estimated tax for 2011 if you were a U.S. citizen or resident alien for all of 2010 and you had no tax liability for the full 12-month 2010 tax year.

Form 1040-ES contains a worksheet that you can use to help you figure your estimated tax payments. For more information, see chapter 2 in Publication 505.

If your gross income, including the taxable part of your annuity, is less than a certain amount, you generally do not have to file a federal income tax return for that year. The gross income filing requirements for the tax year are in the instructions to Form 1040, 1040A, or 1040EZ.

If you are the surviving spouse of a federal employee or retiree and your monthly annuity check includes a survivor annuity for one or more children, each child's annuity counts as his or her own income (not yours) for federal income tax purposes.

If your child can be claimed as a dependent, treat the taxable part of his or her annuity as unearned income when applying the filing requirements for dependents.

Form CSF 1099R will be mailed to you by January 31 after the end of each tax year. It will show the total amount of the annuity you received in the past year. It also should show, separately, the survivor annuity for a child or children. Only the part that is each individual's survivor annuity should be shown on that individual's Form 1040 or 1040A.

If your Form CSF 1099R does not show separately the amount paid to you for a child or children, attach a statement to your return, along with a copy of Form CSF 1099R, explaining why the amount shown on the tax return differs from the amount shown on Form CSF 1099R.

To find the taxable part of a retiree's annuity when applying the filing requirements, see the discussion in Part II, Rules for Retirees, or Part III, Rules for Disability Retirement and Credit for the Elderly or the Disabled, whichever applies. To find the taxable part of each survivor annuity when applying the filing requirements, see the discussion in Part IV, Rules for Survivors of Federal Employees, or Part V, Rules for Survivors of Federal Retirees, whichever applies.