Civil Service Retirement Annuities: The Taxable and Nontaxable Parts
Published November 7, 2026
Publication 721 (2025), Tax Guide to U.S. Civil Service Retirement Benefits, explains federal income tax on annuities. They are paid under the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). It covers retired federal employees, people who retire on disability, and survivors. This guide covers the basic split between taxable and nontaxable amounts. It is general information. It is not advice about your case.
The basic split
Part of each annuity payment is a nontaxable return of what you paid into the plan. The rest is taxable. The publication says your cost is the amount you contributed. The nontaxable part is a fixed dollar amount each month. Under both methods, each monthly payment has a nontaxable part and a taxable part.
Which method applies
The method depends on your annuity starting date. If the annuity starting date is after November 18, 1996, you must use the Simplified Method. From July 2, 1986 through November 18, 1996, you could choose the General Rule or the Simplified Method. Before July 2, 1986, the publication describes the 3-Year Rule and the General Rule. Publication 939 explains the General Rule.
How the Simplified Method works
Under the Simplified Method, the nontaxable monthly amount stays the same. It does not change when the annuity is increased. The total you can exclude over the years has a limit. For an annuity starting after 1986, the total excluded cannot be more than your total cost. The publication gives an example. Suppose you exclude $100 a month, and your cost is $12,000. The exclusion ends after 120 months, which is 10 years. After that, your entire annuity is generally taxable.
If you die before the cost is recovered
For an annuity starting after July 1, 1986, the publication allows a deduction for unrecovered cost. This applies when the annuity holder, or the survivor annuitant, dies before the cost is recovered. The publication says the deduction is claimed on the final return as an other itemized deduction.
Choosing a survivor annuity later
If you retired without a survivor annuity and use the Simplified Method, keep the same nontaxable monthly amount. That is true even if you later choose a survivor annuity. If you used the General Rule, you need a new exclusion percentage. That applies if you later choose a reduced survivor annuity.
Lump-sum payments of contributions
If you leave federal service, you can choose a lump-sum payment of your contributions. If that payment includes only your contributions, none of it is taxable. If it includes interest, the interest is taxable. The exception is a direct rollover into another qualified plan, a traditional IRA, or a traditional SIMPLE IRA. If the payment is not rolled over directly, the publication says 20% tax is withheld.
Withholding and estimated tax
Your annuity is subject to federal income tax withholding. You can choose not to have tax withheld. The Office of Personnel Management tells you how to make that choice. If you choose no withholding, or too little is withheld, you may need estimated tax payments. The publication says you generally owe a penalty for underpayment. That applies if the additional tax you must pay with your return is $1,000 or more. It also applies if that amount is more than 10% of your tax. Publication 505 has the exceptions.
Forms to keep
The Office of Personnel Management mails Form CSA 1099-R each year. It shows any tax withheld. Attach a copy to your return if any federal income tax was withheld. Survivors receive Form CSF 1099-R for a survivor annuity.
What to do next
Find your annuity starting date and your total cost. Check the Form CSA 1099-R for the year. Then compare the nontaxable amount you use with the Simplified Method rules. For the general rules on pension and annuity income, see Pension and Annuity Income: The Simplified Method. To see how a retirement distribution appears on your return, see Form 1099-R: What Retirement Distributions Mean on Your Return. If withholding will not cover your tax, see Estimated Taxes: The Safe Harbor Rules.
Sources: Sources: IRS, Publication 721 (2025), Tax Guide to U.S. Civil Service Retirement Benefits (https://www.irs.gov/pub/irs-pdf/p721.pdf) This is general information, not advice about your specific return.
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