Retirement Security:

Determining the Taxable Portion of Federal Pension Distributions

GGD-99-73R: Published: May 3, 1999. Publicly Released: May 3, 1999.

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Pursuant to a congressional request, GAO provided information on: (1) what reasons, if any, exist for the Office of Personnel Management (OPM) to report the taxable portion of annuity benefits for newly retired federal employees on the Form CSA 1099R (Statement of Annuity Paid); and (2) the feasibility of OPM's doing so.

GAO noted that: (1) there are three reasons for OPM to report on Form CSA 1099R the taxable portion of the annuity for newly retired federal employees; (2) the task of calculating this portion can be burdensome from the retirees' perspective; (3) the complexity of the requirement could result in retirees' miscalculating the taxable portion of their annuity for income tax purposes; (4) reporting the taxable portion of the annuity on Form CSA 1099R would allow the Internal Revenue Service (IRS) to use it for computer matching purposes; (5) computer matching of information and tax returns is one way that IRS verifies a taxpayer's income to determine the proper tax owed; (6) according to OPM officials, it would be feasible for OPM to report the taxable portion on Form CSA 1099R for federal employees with annuities starting after November 18, 1996, when the Simplified Method became the only method allowed; (7) before that date, retirees could use either the Simplified Method or the General Rule method, and OPM would not know which method the retiree preferred; (8) OPM has the necessary data, which are computerized, to make the Simplified Method calculation; (9) the officials GAO spoke with said that a calculation formula could easily be programmed to determine the tax-free amount and subtract it from the retiree's gross annuity amount; (10) they also said the costs of doing so would not be large; (11) OPM expects to report taxable amounts on tax year 2000 Forms CSA 1099R in January 2001 for employees who retired after November 18, 1996; and (12) the officials said that OPM has taken other actions to help retirees calculate the taxable amount.

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