Q. I am a federal employee under CSRS with 36 years of service. I’m thinking about retiring the end of this year. Is there any advantage to retiring on Saturday, Dec. 31, which is the beginning of the pay period versus Tuesday, Jan. 3, after the New Year holiday?
A. Saturday, Dec. 31, is the end of a pay period, not the beginning. If you retired then, you’ll receive a lum-sum payment for any unused annual leave you had to your credit. If you retired after that, any unused leave that exceeded the limit (usually 240 hours) would be lost. That’s why it’s called “use of lose” leave. Also, by retiring at the end of the pay period, you would be on the annuity roll the following day, Jan. 1. Because you are a CSRS employee, you could retire up to January 3, 2012 and be on the annuity roll in January. However, while you’d gain a couple of days of extra pay by staying on, you’d lose two things by doing so: any use-or-lose leave you had to your credit and a 1/30th reduction in your first month’s annuity for each day you weren’t on the annuity roll.
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The date you retire has no effect on the tax you must pay on a lump sum payment for accrued annual leave. The taxes on that income is calculated and due in the year the check is actually received. A retiree will not see that check for 6 to 8 weeks after retirement so anyone retiring on Dec 31 or Jan 1 will pay 2012 taxes on any lump sum annual leave payment received on or after Jan 1. Anyone who has more than 240 hrs of accrued annual leave should retire on Dec 31. If they retire on or after Jan 1, they will forfeit all annual leave exceeding 240 hrs. The only exception is if they worked oconus and were allowed to accrue upto 360 hrs of annual leave.