Q: I retired in October 2006 because of a disability from the CSRS. I had paid more than $60,000 into the CSRS and was told when I reach my retirement age of 55 (in February 2011) that I would not be subject to federal taxes on that 60,000. So I was hoping to not pay federal taxes the next couple years. But depending on who in the government I talk to I seem to get different answers. What is the truth? I have been paying federal taxes all along on the disability annuity they send me and was expecting some relief this year.
A: Under current law your disability retirement income is treated as earned income unless you are determined to be totally disabled for all gainful employment. Because OPM is only able to determine if you are disabled for the performance of the position from which you retired (or a vacant one of equal grade or pay), your disability retirement may not meet the Internal Revenue Service’s criteria for a tax-exempt benefit. Go to www.irs.gov to get current tax information