Simplified Method: Federal Employee Retirement Taxes (2025 IRS Guide)
This guide covers “Simplified Method” 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..
Simplified Method
If your annuity starting date is after November 18, 1996, you must use the Simplified Method to figure the tax-free part of your CSRS or FERS annuity. (OPM has figured the taxable amount of your annuity shown on your Form CSA 1099-R using the Simplified Method.) You could have chosen to use either the Simplified Method or the General Rule if your annuity starting date is after July 1, 1986, but before November 19, 1996. The Simplified Method doesn’t apply if your annuity starting date is before July 2, 1986.
Under the Simplified Method, you figure the tax-free part of each full monthly payment by dividing your 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. If your annuity starting date is after 1997 and your annuity includes a survivor benefit for your spouse, this number is based on your combined ages.
Worksheet A.
Use Worksheet A (near the end of this publication) to figure your taxable annuity. Be sure to keep the completed worksheet. It will help you figure your taxable amounts for later years.
.Instead of Worksheet A, you can generally use the Simplified Method Worksheet in the Instructions for Form 1040 to figure your taxable annuity. However, you must use Worksheet A and Worksheet B in this publication if you chose the alternative annuity option, discussed later..
Line 2.
See Your cost, earlier, for an explanation of your cost in the plan. If your annuity starting date is after November 18, 1996, and you chose the alternative annuity option (explained later), you must reduce your cost by the tax-free part of the lump-sum payment you received.
Line 3.
The number you enter on line 3 is the appropriate number from Table 1 or 2 representing approximate life expectancies in months. If your annuity starting date is after 1997, use:
Table 1 for an annuity without a survivor benefit, or
Table 2 for an annuity with a survivor benefit.
Line 6.
If you received contributions tax free before 2025, the amount previously recovered tax free that you must enter on line 6 is the total amount from line 10 of last year’s worksheet. If your annuity starting date is before November 19, 1996, and you chose the alternative annuity option, this amount includes the tax-free part of the lump-sum payment you received.
Example.
Bill Smith retired from the federal government on March 31, 2025, under an annuity that will provide a survivor benefit for his wife, Kathy. His annuity starting date is April 1, 2025, the annuity is paid in arrears, and he received his first monthly annuity payment on May 1, 2025. He must use the Simplified Method to figure the tax-free part of his annuity benefits.
Bill’s monthly annuity benefit is $1,000. He had contributed $31,000 to his retirement plan and had received no distributions before his annuity starting date. At his annuity starting date, he was age 65 and Kathy was age 57.
Bill’s completed Worksheet A is shown later. To complete line 3, he used Table 2 at the bottom of the worksheet and found that 310 is the number in the second column opposite the age range that includes 122 (his and Kathy’s combined ages). Bill keeps a copy of the completed worksheet for his records. It will help him (and Kathy, if she survives him) figure the taxable amount of the annuity in later years.
Bill’s tax-free monthly amount is $100. (See line 4 of the worksheet.) If he lives to collect more than 310 monthly payments, he will generally have to include in his gross income the full amount of any annuity payments received after 310 payments have been made.
If Bill doesn’t live to collect 310 monthly payments and his wife begins to receive monthly payments, she will also exclude $100 from each monthly payment until 310 payments (Bill’s and hers) have been collected. If she dies before 310 payments have been made, an “Other Itemized Deduction” will be allowed for the unrecovered cost on her final income tax return.
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 — Simplified Method — 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.