Part IV Rules for Survivors of Federal Employees

This part of the publication is for survivors of federal employees. It explains how to treat amounts you receive because of the employee’s death. If you are the survivor of a federal retiree, see Part V, later.

Employee earnings. Salary or wages earned by a federal employee but paid to the employee’s survivor or beneficiary after the employee’s death are income in respect of the decedent. This income is taxable to the survivor or beneficiary. This treatment also applies to payments for accrued annual leave.

Dependents of public safety officers. The Public Safety Officers’ Benefits program, administered through the Bureau of Justice Assistance (BJA), provides a tax-free death benefit to eligible survivors of public safety officers whose death is the direct and proximate result of a traumatic injury sustained in the line of duty. The death benefit isn’t includible in the decedent’s gross estate for federal estate tax purposes or the survivor’s gross income for federal income tax purposes.

A public safety officer is a law enforcement officer, firefighter, or member of a public rescue squad or ambulance crew. In certain circumstances, a chaplain killed in the line of duty is also a public safety officer. The chaplain must have been responding to a fire, rescue, or police emergency as a member or employee of a fire or police department.

This program can pay survivors an emergency interim benefit of up to $3,000 if it finds that the death of the public safety officer is one for which a final benefit will probably be paid. If there is no final payment, the recipient of the interim benefit is liable for repayment. However, the BJA may not require all or part of the repayment if it will cause a hardship. If that happens, that amount is tax free.

Additional information about this program is available on the BJA website at BJA.OJP.gov .

For more information on this program, you may also contact the BJA by calling 1-888-744-6513.

You may be entitled to a special FERS death benefit if you were the spouse of an active FERS employee who died after at least 18 months of federal service. At your option, you can take the benefit in the form of a single payment or in the form of a special annuity payable over a 3-year period.

The tax treatment of the special death benefit depends on the option you choose and whether a FERS survivor annuity is also paid.

If you choose the single payment option, use the following rules.

• If a FERS survivor annuity isn’t paid, at least part of the special death benefit is tax free. The tax-free part is an amount equal to the employee’s FERS contributions.

• If a FERS survivor annuity is also paid, all of the special death benefit is taxable. You can’t allocate any of the employee’s FERS contributions to the special death benefit.

If you choose the 3-year annuity option, at least part of each monthly payment is tax free. Use the following rules.

• If a FERS survivor annuity isn’t paid, the tax-free part of each monthly payment is an amount equal to the employee’s FERS contributions divided by 36.

• If a FERS survivor annuity is also paid, allocate the employee’s FERS contributions between the 3-year annuity and the survivor annuity. Make the allocation in the same proportion that the expected return from each annuity bears to the total expected return from both annuities. Divide the amount allocated to the 3-year annuity by 36. The result is the tax-free part of each monthly payment of the 3-year annuity.

If you receive a CSRS or FERS survivor annuity, you can recover the employee’s cost tax free. The employee’s cost is the total of the retirement plan contributions that were taken out of their pay.

How you figure the tax-free recovery of the cost depends on your annuity starting date. This is the day after the date of the employee’s death. The methods to use are the same as those described under Recovering your cost tax free near the beginning of Part II, earlier.

The following discussions cover only the Simplified Method. You can use this method if your annuity starting date is after July 1, 1986. You must use this method if your annuity starting date is after November 18, 1996. Under the Simplified Method, each of your monthly annuity payments is made up of two parts: the tax-free part that is a return of the employee’s cost and the taxable part that is the amount of each payment that is more than the part that represents the employee’s cost. The tax-free part remains the same, even if your annuity is increased. However, see Exclusion limit , later.

Surviving spouse with no children receiving annui- ties. Under the Simplified Method, you figure the tax-free part of each full monthly annuity payment by dividing the employee’s cost by a number of months based on your age. This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. To use the Simplified Method, complete Worksheet A. Specific instructions for Worksheet A are given under Simplified Method in Part II, earlier.

Example. Diane Green, age 48, began receiving a $1,500 monthly CSRS annuity in March 2025 upon the

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death of her husband. Her husband was a federal employee when he died. She received 10 payments in 2025. Her husband had contributed $36,000 to the retirement plan.

Diane must use the Simplified Method. Her completed Worksheet A is shown later. To complete line 3, she used Table 1 at the bottom of the worksheet and found that 360 is the number in the last column opposite the age range that includes her age. Diane keeps a copy of the completed worksheet for her records. It will help her figure her taxable annuity in later years.

Diane’s tax-free monthly amount is $100 (line 4 of her worksheet). If she lives to collect more than 360 payments, the payments after the 360th will be fully taxable. If she dies before 360 payments have been made, an “Other Itemized Deduction” will be allowed for the unrecovered cost on her final income tax return.

Surviving spouse with child. If the survivor benefits include both a life annuity for the surviving spouse and one or more temporary annuities for the employee’s children, an additional step is needed under the Simplified Method to allocate the monthly exclusion among the beneficiaries correctly.

Figure the total monthly exclusion for all beneficiaries by completing lines 2 through 4 of Worksheet A as if only the surviving spouse received an annuity. Then, to figure the monthly exclusion for each beneficiary, multiply line 4 of the worksheet by a fraction. For any beneficiary, the numerator of the fraction is that beneficiary’s monthly annuity, and the denominator is the total of the monthly annuity payments to all the beneficiaries.

The temporary annuity is payable to the child until the child reaches a specified age in the plan, which can’t be older than 25. The ending of a child’s temporary annuity doesn’t affect the total monthly exclusion figured under the Simplified Method. The total exclusion merely needs to be reallocated at that time among the remaining beneficiaries. If only the surviving spouse is left drawing an annuity, the surviving spouse is entitled to the entire monthly exclusion as figured in the worksheet.

Example. The facts are the same as in the example for Diane Green in the preceding discussion, except that the Greens had a son, Robert, who was age 15 at the time of his father’s death. Robert is entitled to a $500-per-month temporary annuity until he reaches age 18 (age 22, if he remains a full-time student and doesn’t marry), as specified by the plan.

In completing Worksheet A (not shown), Diane fills out the entries through line 4 exactly as shown in the filled-in worksheet for the earlier example. That is, she includes on line 1 only the amount of the annuity she herself received and she uses on line 3 the 360 factor for her age. After arriving at the $100 monthly exclusion on line 4, however, Diane allocates it between her own annuity and that of her son.

To find how much of the monthly exclusion to allocate to her own annuity, Diane multiplies the $100 monthly exclusion by the fraction $1,500 (her monthly annuity) over $2,000 (the total of her $1,500 and Robert’s $500 annuities). She enters the result, $75, just below the entry

space for line 4. She completes the worksheet by entering $750 on lines 5 and 8, and $14,250 on line 9.

A second Worksheet A (not shown) is completed for Robert’s annuity. On line 1, he enters $5,000 as the total annuity received. Lines 2, 3, and 4 are the same as those on his mother’s worksheet. In allocating the $100 monthly exclusion on line 4 to his annuity, Robert multiplies it by the fraction $500 over $2,000. His resulting monthly exclusion is $25. His exclusion for the year (line 8) is $250, and his taxable annuity for the year (line 9) is $4,750.

Diane and Robert only need to complete lines 10 and 11 on a single worksheet to keep track of their unrecovered cost for next year. These lines are exactly as shown in the filled-in Worksheet A for the earlier example.

When Robert’s temporary annuity ends, the computation of the total monthly exclusion will not change. The only difference will be that Diane will then claim the full exclusion against her annuity alone.

Surviving child only. A method similar to the Simplified Method can also be used to figure the taxable and nontaxable parts of a temporary annuity for a surviving child when there is no surviving spouse annuity. To use this method, divide the deceased employee’s cost by the number of months from the child’s annuity starting date until the date the child will reach age 22. The result is the monthly exclusion. (However, the monthly exclusion can’t be more than the monthly annuity payment. You can carry over unused exclusion amounts to apply against future annuity payments.)

More than one child. If there is more than one child entitled to a temporary annuity (and no surviving spouse annuity), divide the cost by the number of months of payments until the date the youngest child will reach age 22. This monthly exclusion must then be allocated among the children in proportion to their monthly annuity payments, like the exclusion shown in the previous example.

Disabled child. If a child otherwise entitled to a temporary annuity was permanently disabled at the annuity starting date (and there is no surviving spouse annuity), that child is treated for tax purposes as receiving a lifetime annuity, like a surviving spouse. The child must complete line 3 of Worksheet A using a number in Table 1 at the bottom of the worksheet corresponding to the child’s age at the annuity starting date. If more than one child is entitled to a temporary annuity, an allocation like the one shown under Surviving spouse with child , earlier, must be made to determine each child’s share of the exclusion.

Exclusion limit. If your annuity starting date is after 1986, the most that can be recovered tax free is the cost of the annuity. Once the total of your exclusions equals the cost, your entire annuity is taxable. If your annuity starting date is before 1987, the tax-free part of each whole monthly payment remains the same each year you receive payments—even if you outlive the number of months used on line 3 of the Simplified Method Worksheet. The total exclusion may be more than the cost of the annuity.

Deduction of unrecovered cost. If the annuity starting date is after July 1, 1986, and the annuitant’s death occurs

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Worksheet A.

Simplified Method for Diane Green

See the instructions under Simplified Method in Part II of this publication.

• A death benefit exclusion of up to $5,000 applies to certain benefits received by survivors of employees who died before August 21, 1996.

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before all the cost is recovered tax free, the unrecovered cost can be claimed as an “Other Itemized Deduction” for the annuitant’s last tax year.

Survivors of Slain Public Safety Officers

Generally, if you receive survivor annuity payments as the spouse, former spouse, or child of a public safety officer killed in the line of duty, you can exclude the payments from your income. The annuity is excludable to the extent that it is due to the officer’s service as a public safety officer. Public safety officers include law enforcement officers, firefighters, chaplains, ambulance crew members, and rescue squad members. The provision applies to a chaplain killed in the line of duty after September 10, 2001. The chaplain must have been responding to a fire, rescue, or police emergency as a member or employee of a fire or police department.

The exclusion doesn’t apply if your actions were a substantial contributing factor to the death of the officer. It also doesn’t apply if:

• The death was caused by the intentional misconduct of the officer or by the officer’s intention to cause their own death,

• The officer was voluntarily intoxicated at the time of death, or

• The officer was performing their duties in a grossly negligent manner at the time of death.

Lump-sum payment at end of survivor annuity. If an annuity is paid to the federal employee’s survivor and the survivor annuity ends before an amount equal to the deceased employee’s contributions plus any interest has been paid out, the rest of the contributions plus any interest will be paid in a lump sum to the employee’s estate or other beneficiary. Generally, this beneficiary will not have to include any of the lump sum in gross income because, when it is added to the amount of the annuity previously received that was excludable, it will still be less than the employee’s total contributions.

Any unrecovered cost is allowed as an “Other Itemized Deduction” on the final return of the annuitant.

To figure the taxable amount, if any, use Worksheet D.

Worksheet D.

Lump-Sum Payment at End of Survivor Annuity

1. Enter the lump-sum payment . . . . . . 1.

2. Enter the amount of annuity previously received tax free . . . . . . . . . . . . . . . . . 2.

3. Add lines 1 and 2 . . . . . . . . . . . . . . . . 3.

4. Enter the employee’s total cost . . . . . 4.

5. Taxable amount. Subtract line 4 from line 3. Enter the result, but not less than zero . . . . . . . . . . . . . . . . . . . . . . . 5.

The taxable amount, if any, generally can’t be rolled over into an IRA or other plan and is subject to federal income tax withholding at a 10% rate. However, a nonspousal beneficiary making a transfer described under Rollovers by nonspouse beneficiary under Rollover Rules in Part II , earlier, can roll over any taxable amount. In addi- tion, the payment may qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option if the plan participant was born before January 2, 1936. If the beneficiary also receives a lump-sum payment of unrecovered voluntary contributions plus interest, this treatment applies only if the payment is received within the same tax year. For more information, see Lump-Sum Dis- tributions in Pub. 575.

Example. At the time of your brother’s death in December 2024, he was employed by the federal government and had contributed $45,000 to the CSRS. His surviving spouse received $6,600 in survivor annuity payments before she died in 2025. She had used the Simplified Method for reporting her annuity and properly excluded $1,000 from gross income.

Only $6,600 of the guaranteed amount of $45,000 (your brother’s contributions) was paid as an annuity, so the balance of $38,400 was paid to you in a lump sum as your brother’s sole beneficiary. You figure the taxable amount of this payment as follows.