CSRS, sick leave and taxes


Q: When I retire, I will have 2,203 hours of sick leave. I am under Civil Service Retirement System Offset. I believe 2,087 hours is the equivalent of one year of service when I retire. So when I retire at age 58, — at 30 years, 6 months of service — I will get an extra year added to my time, so I will have 31 years, 6 months of service that will apply for purposes of calculating my retirement annuity. Is this correct? My husband works a nine-hour schedule that gives him one day off every week. Does the same 2,087 number apply to him, or is it different? He will retire under CSRS with 36 years of service this year and 2,805 hours of sick leave. We want to know how many years/months will be apply to his retirement, as well. My next question: I am under CSRS Offset. When I get my lump-sum payment for annual leave, will I have to pay Social Security tax on that money? I plan to retire on Jan. 1, 2011, so I will not receive the money until 2011. I understood that people under CSRS would not pay Social Security tax under any circumstances. Is that true?

A: If you retired with exactly 30 years and six months of service — not an hour more or less — your 2,203 hours of unused sick leave would add another one year (2,087 hours) and one month (174 hours) and be used in the computation of your annuity. The remaining 42 hours of unused sick leave would be dropped. However, if you didn’t retire with exactly 30 years and six months of service, any days in excess of that would be converted to sick leave days, which are approximately 5.797 hours long, and added to the leftover sick leave days. If the combination totaled at least 174 hours, you’d receive credit for one more month in your annuity computation. The same rules will apply to your husband’s unused sick leave. In his case, 2,805 hours would give him one year (2,087) and four months (696) of additional credit, with 22 hours dropped. The fact that he is on a modified work schedule is irrelevant.
As to your second question, federal, state (where applicable) and Social Security taxes will be deducted from your lump-sum annual leave payment. While employees who are covered solely by CSRS don’t have Social Security taxes deducted fro their salaries or lump-sum annual leave payments, those covered by CSRS Offset do have them deducted. CSRS Offset employees have full Social Security deductions taken out of their pay. Only a small portion goes to pay for their CSRS benefits. If they retire before age 62, their CSRS annuities are offset by the amount of Social Security benefit they earned while covered by CSRS Offset. If they retire at age 62 or later, the offset occurs on the day they retire.


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Reg Jones was head of retirement and insurance policy at the Office of Personnel Management. Email your retirement-related questions to fedexperts@federaltimes.com.

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