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Searching  
#1 Posted : Tuesday, June 28, 2011 8:54:21 AM(UTC)
Searching

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Will you please share with me how your FERS supplement is taxed? Is it taxed like SS or regular income?
Tryno  
#2 Posted : Wednesday, June 29, 2011 5:13:17 AM(UTC)
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Searching, it's my understanding that at least on the federal level the FERS supplement is taxed as SS.  
LinkC  
#3 Posted : Wednesday, June 29, 2011 5:57:30 AM(UTC)
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That's what I was told at some point of the retirement process.  I believe it was in a Retirement Seminar.  That's what I'm going with until I hear otherwise.
"The nine most terrifying words in the English language are: 'I'm from the government and I'm here to help.'" <br />--what Reagan REALLY said.
Hobson  
#4 Posted : Wednesday, June 29, 2011 6:13:48 AM(UTC)
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Wishful thinking.  Although the amount of your FERS supplement is calculated based on your expected Social Security income, it is not Social Security and is not paid by the Social Security Administration.  It is part of your pension and is reported on the 1099R issued by OPM.  The supplement is not even separated out from your regular pension.  The 1099R will show your gross distribution in box 1 and your taxable income in box 2a.


Janla  
#5 Posted : Wednesday, June 29, 2011 7:20:30 PM(UTC)
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This is from a Q&A in Federal Times -
 

Q: I have seen conflicting opinions on how the FERS annuity supplement is taxed at the federal level. Is it fully taxed, or is it taxed at 50 percent if your combined income is $32,000 to $44,000 and taxed at 85 percent if your income is $44,000? I start receiving the FERS supplement in June and I have to know how it’s taxed for next year’s tax filing. I retired under FERS. I get the supplement from my MRA of 56 years old until I’m 62 years old.

A: It is taxed as if it were a Social Security benefit. From the ssa.gov website:
“Some people have to pay federal income taxes on their Social Security benefits. This usually happens only if you have other substantial income (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to your benefits.
No one pays federal income tax on more than 85 percent of his or her Social Security benefits based on Internal Revenue Service (IRS) rules. If you:
file a federal tax return as an “individual” and your combined income* is
between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
more than $34,000, up to 85 percent of your benefits may be taxable.
file a joint return, and you and your spouse have a combined income* that is
between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
more than $44,000, up to 85 percent of your benefits may be taxable.
are married and file a separate tax return, you probably will pay taxes on your benefits.

Hobson  
#6 Posted : Thursday, June 30, 2011 3:50:17 AM(UTC)
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Who am I to disagree with the Federal Times?

I'm going to continue to compute my federal income tax on the full taxable amount of my FERS pension, including the supplement.

Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits:

http://www.irs.gov/publications/p721/ar02.html#en_US_2010_publink1000228171

Part II Rules for Retirees

"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; Form 1040A, line 12a; or Form 1040NR, line 17a. 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), line 12b (Form 1040A), or line 17b (Form 1040NR). 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, lines 12a and 12b, or lines 17a or 17b, instead 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; Form 1040A, line 12b; or Form 1040NR, line 17b, the total received for the year (except for any amount reported on Form 4972); no entry is required on line 16a (Form 1040), line 12a (Form 1040A), or line 17a (Form 1040NR)."

Publication 915, Social Security and Equivalent Railroad Retirement Benefits, states that your Social Security benefits are reported on form SSA-1099, Social Security Benefit Statement.

http://www.irs.gov/pub/irs-pdf/p915.pdf

The instructions on page 4 and throughout the publication do not mention the FERS supplement.  It seems to me that if the FERS supplement is supposed to be treated like Social Security for federal income tax purposes, one of the above publications would contain something that says if you are receiving the FERS supplement, it is taxed as Social Security income.


Searching  
#7 Posted : Thursday, June 30, 2011 4:31:55 AM(UTC)
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This seems to be a clue, what do you all think?:

Changes in the Amount of the Supplement

Like social security benefits, the FERS annuity supplement is subject to an earnings test.  It is reduced if you earn more than the social security exempt amount of earnings in the immediately preceding year.  The supplement is reduced by $1.00 for every $2.00 of earnings over the minimum level.  It is possible that the supplement could reduce to $0.  However, the FERS basic benefit will not be reduced.  If you are receiving a supplement, you must report your earnings to OPM.  You will receive instructions on how to report your earnings, once you begin receiving the annuity supplement.

Minimum Level of Earnings

The amount you may earn without affecting your FERS annuity supplement is determined by the Social Security Administration each year.  It increases with the annual increases in average wages for the national workforce.

Top of Page

Definition of Earnings

The FERS basic benefit is not considered earnings when determining your earnings for the earnings test.  Earnings for the year consist of the sum of wages for service performed in the year, plus all net earnings from self-employment for the year, minus any net loss from self-employment for the year.

Searching2011-06-30 13:01:44
kgkistari  
#8 Posted : Saturday, July 02, 2011 5:42:59 AM(UTC)
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The FERS special supplement is not taxed like Social Security since it does not come from the Social Security Administration.  It is taxed as regular income.  In fact, that income is included in the 1099R you receive for your pension.

 


kgkistari2011-07-02 13:48:58
Searching  
#9 Posted : Saturday, July 02, 2011 7:43:47 AM(UTC)
Searching

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But if OPM makes you report your outside earning to them, and OPM deducts your supplement if you make too much money...they are treating it just like SS...Searching2011-07-02 15:50:27
Searching  
#10 Posted : Tuesday, July 05, 2011 5:10:52 AM(UTC)
Searching

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Thank you for all your replies.
 
Ok, this topic ended with 3 posters saying "taxed like SS" and two posters saying "not taxed like SS". It seem hard to find a definative answer on this. Searched OPM again and just came up with the same vague pages.
postalvet  
#11 Posted : Tuesday, July 05, 2011 10:56:34 AM(UTC)
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someone should ask this place I am CSRS or I would.
 
Retired postal worker of 38 years who is willing to help even though some do not want to hear the truth.
Searching  
#12 Posted : Wednesday, July 06, 2011 1:34:39 AM(UTC)
Searching

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postalvet wrote:
someone should ask this place I am CSRS or I would.
 
Thanks good idea, I e-mailed to one of their associate on the Fedsmith web site. I'll post the reply.
Tryno  
#13 Posted : Wednesday, July 06, 2011 8:15:36 AM(UTC)
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Here's what I've found:
 
 

Taxes and the FERS Supplement

When we discuss the Supplement in the Federal Retirement classes I teach, some people say, “If the government already reduced my FERS Supplement – surely they can’t tax it too.”

Well, sorry – they can – and they do.

But this tax is only for the so-called “wealthy”. When I mention this in class, a lot of people in the class sit back and relax – but then sit straight up in their chair when I tell them who the IRS considers to be “wealthy”.

The IRS defines wealthy as having a combined income (for Married Filing Joint) over $32,000.

Yes, $32,000. And combined income includes the sum of your adjusted gross income from your 1040 plus non-taxable interest plus one-half of your Social Security benefits.

So now it’s not only your earned income that is considered – it is all of your income – including your regular FERS pension, any TSP withdrawals, investment earnings, Alaska PFD, alimony, etc. etc. etc.

If you’re combined income is over $32,000, but below $44,000 – 50% of your FERS Supplement is subject to Federal income taxes.

If you have a combined income greater than $44,000, then 85% of your Supplement will be subject to Federal income taxes.

Tax on supplement

May 25th, 2011 | Uncategorized | Posted by Mike Miles



The line above was changed to allow for linking the author's name to a profile popup, using the
Author Exposed plugin

David Lindsey
09 / 30 / 08
dlindsey@atpco.com

-->

May 25th, 2011 | Uncategorized

Q: I have seen conflicting opinions on how the FERS annuity supplement is taxed at the federal level. Is it fully taxed, or is it taxed at 50 percent if your combined income is $32,000 to $44,000 and taxed at 85 percent if your income is $44,000? I start receiving the FERS supplement in June and I have to know how it’s taxed for next year’s tax filing. I retired under FERS. I get the supplement from my MRA of 56 years old until I’m 62 years old.

A: It is taxed as if it were a Social Security benefit. From the ssa.gov website:
“Some people have to pay federal income taxes on their Social Security benefits. This usually happens only if you have other substantial income (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to your benefits.
No one pays federal income tax on more than 85 percent of his or her Social Security benefits based on Internal Revenue Service (IRS) rules. If you:
file a federal tax return as an “individual” and your combined income* is
between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
more than $34,000, up to 85 percent of your benefits may be taxable.
file a joint return, and you and your spouse have a combined income* that is
between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
more than $44,000, up to 85 percent of your benefits may be taxable.
are married and file a separate tax return, you probably will pay taxes on your benefits.
*Note:
Your adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefits
= Your “combined income””

 
 
 
Searching  
#14 Posted : Wednesday, July 06, 2011 10:58:57 PM(UTC)
Searching

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Thanks Tryno that's a lot of good information!
Searching  
#15 Posted : Thursday, July 07, 2011 11:14:44 PM(UTC)
Searching

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Ok, here is the answer from Postalvet's link (confusing me more because it conflicts with the information from Tryno from another retirement expert):
 
From:
"John Grobe, President of Federal Career Experts, has had close to 40 years of experience with federal issues; first as an employee and manager and later as a consultant.  He has written three books (two of which have sold over 20,000 copies) and is a frequent contributor to the fedsmith newsletter.  He is an accomplished trainer and consultant." (off their web site)
My question, e-mailed to his fedsmith column link: Can you tell me if my fers supplement is taxed like social security or regular income?
 
Hi answer:

"Regular income."

John Grobe

Speaker, Trainer and Consultant

President, Federal Career Experts

(630) 208-7233

(708) 267-9224 (mobile)

kgkistari  
#16 Posted : Friday, July 08, 2011 4:42:56 AM(UTC)
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The definative answer is that it's taxed like ordinary income.  I can say this with great certainty because 1.  I spend 20+ years in the IRS exam field and have knowledge of this subject 2.  I'm an enrolled agent and 3. I'm retired and have been claiming this as ordinary income for 3 years now.
Now if you claim it like SS, you will receive a CP-2000 correcting it about a year later and you will pay the additional tax plus interest and late payment penalty.
 
Searching  
#17 Posted : Friday, July 08, 2011 5:09:09 AM(UTC)
Searching

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kgkistari wrote:
The definative answer is that it's taxed like ordinary income.  I can say this with great certainty because 1.  I spend 20+ years in the IRS exam field and have knowledge of this subject 2.  I'm an enrolled agent and 3. I'm retired and have been claiming this as ordinary income for 3 years now.
Now if you claim it like SS, you will receive a CP-2000 correcting it about a year later and you will pay the additional tax plus interest and late payment penalty.
 
 
Thank you! I'm conviced now. Good to know for our financial planning. My spouce and I have both been offered early outs and need to $crunch$ numbers closely.
Tryno  
#18 Posted : Sunday, July 10, 2011 3:50:17 AM(UTC)
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It is taxed as ordinary income but only a portion of it is taxable depending on your income.  No more then 85% is taxable.  That 85% is taxed at "ordinary" income rates. 
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