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Federal Employees Benefits Q &A

Do you have questions about your federal employee CSRS or FERS pension/annuity or federal employee retirement planning? Concerns about your Thrift Savings Plan (TSP) account or what about federal employee pay and leave issues?

Ask your question here.

The Q&A forum is moderated by Ed Zurndorfer -- an expert on federal employee benefits -- and a Certified Financial Planner, chartered life underwriter and chartered financial consultant in Maryland.

Zurndorfer is also the author of several federal employee benefits guides published by Federal Employees News Digest.

Your question will be put into a message queue and submitted for review. We cannot guarantee that all questions will be answered, however any answered questions will appear below, and some will also be featured in our daily Federal Daily e-newsletter (Subscribe here). Members of Federal Soup will not be able to submit replies to the questions posted, as we leave the replies for the moderator only.

Please do not submit employee benefits questions to the webmaster or the forum moderator.

Note: FederalSoup.com has attempted to compile information that is as accurate and current as possible for federal employees. Federal policies, laws, regulations, statistics and addresses continually change. Therefore, no warranties are made as to the accuracy or completeness of the information presented in this column. If additional clarification or information is needed, it is suggested that competent and professional assistance be sought. Mr. Zurndorfer does not moderate other forums on FederalSoup and will not reply to general FederalSoup inquiries submitted in this Q&A forum.

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#1 Posted : Friday, December 05, 2008 1:26:04 AM(UTC)

Rank: Newbie

Groups: Registered
Joined: 12/5/2008(UTC)
Posts: 1

Hi Ed.

If I accept a Voluntary Separation Incentive Payment (VSIP) on January 3, 2009 ($25,000) and decide to pay it back in full before December 31, 2009 (in order to be hired back as a contractor/consultant), do I still have to pay income taxes on the VSIP amount for the 2009 tax year?

If I end up doing this, I am hoping that the W-2 form I receive from my agency for 2009 would include the repayment amount (as some sort of negative adjustment to my taxable income) so that my total taxable income on the form does not include the VSIP amount. If the W-2 form does not include the repayment amount, do you know if I can still deduct the repayment amount from my taxable income when I file my tax return for 2009?

I asked my agency's HR retirement specialist these questions and she said I need to contact a tax specialist for advice, but I would also like to get your opinion on this.

I will also try asking someone in payroll these questions.

Ed Zurndorfer  
#2 Posted : Sunday, December 07, 2008 7:28:16 PM(UTC)
Ed Zurndorfer

Rank: Senior Member

Groups: Registered
Joined: 9/10/2001(UTC)
Posts: 4,412

In order to not have your VSIP be included in your taxable wages, you would have to repay the VSIP no later than December 31, 2009. You would then receive a refund of taxes withheld - federal, state, Social Security (if you are covered by FERS) and Medicare Part A. Your 2009 W2 would therefore not include any VSIP.
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