Rules for Retirees — Nonresident Aliens: Federal Employee Retirement Taxes (2025 IRS Guide)
This guide covers “Rules for Retirees — Nonresident Aliens” within federal employee retirement taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.
Adapted from Publication 721 (2025), Tax Guide to U.S. Civil Service Retirement Benefits, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.
Context for these rules
This part of the publication is for retirees who retired on nondisability retirement.
.If you retired on disability before you reached your minimum retirement age, see Rules for Disability Retirement and Credit for the Elderly or the Disabled under Part III, later. However, on the day after you reach your minimum retirement age, use the rules in this section to report your disability retirement and begin recovering your cost..
Rules for Retirees — Nonresident Aliens
The following special rules apply to nonresident alien federal employees performing services outside the United States and to nonresident alien retirees and beneficiaries. A nonresident alien is an individual who isn’t a citizen or a resident alien of the United States.
Special rule for figuring your total contributions.
Your contributions to the retirement plan (your cost) also include the government’s contributions to the plan to a certain extent. You include government contributions that wouldn’t have been taxable to you at the time they were contributed if they had been paid directly to you. For example, government contributions wouldn’t have been taxable to you if, at the time made, your services were performed outside the United States. Thus, your cost is increased by these government contributions, and the benefits that you, or your beneficiary, must include in income are reduced.
This method of figuring your total contributions doesn’t apply to any contributions the government made on your behalf after you became a citizen or a resident alien of the United States.
Limit on taxable amount.
There is a limit on the taxable amount of payments received from the CSRS, the FERS, or the TSP by a nonresident alien retiree or nonresident alien beneficiary. Figure this limited taxable amount by multiplying the otherwise taxable amount by a fraction. The numerator of the fraction is the retiree’s total U.S. Government basic pay, other than tax-exempt pay for services performed outside the United States. The denominator is the retiree’s total U.S. Government basic pay for all services.
Basic pay includes regular pay plus any standby differential. It doesn’t include bonuses, overtime pay, certain retroactive pay, uniform or other allowances, or lump-sum leave payments.
To figure the limited taxable amount of your CSRS or FERS annuity or your TSP distributions, use Worksheet C. (For an annuity, first complete Worksheet A in this publication.)
Worksheet C. Limited Taxable Amount for Nonresident Alien
| 1. | Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Form CSA 1099-R or CSF 1099-R) or TSP distributions (from Form 1099-R) | 1. | _____ | |
| 2. | Enter the total U.S. Government basic pay other than tax-exempt pay for services performed outside the United States | 2. | _____ | |
| 3. | Enter the total U.S. Government basic pay for all services | 3. | _____ | |
| 4. | Divide line 2 by line 3 | 4. | _____ | |
| 5. | Limited taxable amount. Multiply line 1 by line 4. Enter this amount on Form 1040-NR, line 5b | 5. | _____ | |
Example 1.
You are a nonresident alien who performed all services for the U.S. Government abroad as a nonresident alien. You retired and began to receive a monthly annuity of $200. Your total basic pay for all services for the U.S. Government was $100,000. All of your basic pay was tax exempt because it wasn’t U.S. source income.
The taxable amount of your annuity using Worksheet A in this publication is $720. You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows.
Worksheet C. Limited Taxable Amount for Nonresident Alien—Example 1
| 1. | Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Form CSA 1099-R or CSF 1099-R) or TSP distributions (from Form 1099-R) | 1. | $ 720 | |
| 2. | Enter the total U.S. Government basic pay other than tax-exempt pay for services performed outside the United States | 2. | 0 | |
| 3. | Enter the total U.S. Government basic pay for all services | 3. | 100,000 | |
| 4. | Divide line 2 by line 3 | 4. | 0 | |
| 5. | Limited taxable amount. Multiply line 1 by line 4. Enter this amount on Form 1040-NR, line 5b | 5. | 0 | |
Example 2.
You are a nonresident alien who performed services for the U.S. Government as a nonresident alien both within the United States and abroad. You retired and began to receive a monthly annuity of $240.
Your total basic pay for your services for the U.S. Government was $120,000; $40,000 was for work done in the United States and $80,000 was for your work done in a foreign country. The part of your total basic pay for your work done in a foreign country was tax exempt because it wasn’t U.S. source income.
The taxable amount of your annuity figured using Worksheet A in this publication is $1,980. You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows.
Worksheet C. Limited Taxable Amount for Nonresident Alien—Example 2
| 1. | Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Form CSA 1099-R or CSF 1099-R) or TSP distributions (from Form 1099-R) | 1. | $ 1,980 | |
| 2. | Enter the total U.S. Government basic pay other than tax-exempt pay for services performed outside the United States | 2. | 40,000 | |
| 3. | Enter the total U.S. Government basic pay for all services | 3. | 120,000 | |
| 4. | Divide line 2 by line 3 | 4. | 0.333 | |
| 5. | Limited taxable amount. Multiply line 1 by line 4. Enter this amount on Form 1040-NR, line 5b | 5. | 659 | |
Using the guidance
Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.
Sources and further reading
- Publication 721 (2025), Tax Guide to U.S. Civil Service Retirement Benefits: Rules for Retirees — Nonresident Aliens — Internal Revenue Service; 2025 edition.
The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.