Q. Upon retirement from civilian government service, if you chose the survivor benefits plan for your spouse, are the payments deducted monthly from your retirement pay taxable by the government?
A. Payments aren’t deducted monthly for a survivor benefit. Instead, there is a one-time permanent reduction in your annuity. Since that reduction will be made before you receive annuity payments, you will be taxed only on the amount you receive. Note: A portion of your annuity will be tax-free, since it represents a return of the post-tax contributions you made to the retirement system. See IRS Publication 721 at www.irs.gov/pub/irs-pdf/p721.pdf.