Which taxable amount method should I specify for OPM annuity?

Under IRS rules (Pub. 721 - Tax Guide to U.S. Civil Service Retirement Benefits), the Simplified Method is required for nearly all federal retirees whose annuity starting date was after November 18, 1996.

 

The Simplified Method allows you to exclude a portion of your annuity from taxes based on the "cost" of your plan (the after-tax contributions you made while working).

 

Enter CSA 1099-R  (Annuity):

1. Open or continue your return.
2. Under "Wages and Income", Select CSA 1099-R.
3. Enter Box 9b ("Total Employee Contributions" which your "cost" or "basis").
4. The program will ask if the amount in Box 2a is the taxable amount, Select "No", if it says "Unknown.)
5. Enter your information on the Simplified Method worksheet (Annuity Start Date, Plan Cost (Box 9b), and your Age (and your spouse's age, if it’s a joint/survivor annuity) on the date the annuity started.

 

The Simplified Method spreads your after-tax contributions over your expected lifetime (a small portion of your pension will be tax-free every year until you have fully recovered your original contributions).