Q. I am a FERS employee with 23+ years of federal service and 62 years old. My agency is offering Voluntary Separation Incentive Pay to eligible employees, including those who are retirement-eligible. Would the incentive reduce the amount of Social Security I can draw this year?
A. VSIPs are considered earned income. To find out if accepting one would affect your Social Security benefit, go to www.socialsecurity.gov/retire2/rule.htm and see how the “first year rule” would apply to your situation.
6 Comments
I’m a retired Air Force Civilian from Sept 2015. I received a VSIP and received monthly payments for 12 months from Oct 2015 through Sept 2016.
I retired when I was 62 and 1/2 years old and am now 64 1/2.
Social Security is now claiming I was overpaid SS to the tune of $3,000 during that period.
What do I need to provide them to show I did not exceed my earnings threshold?
Send them copies of the 1040s you submitted to the IRS. That will prove which of you is right.
Reg–by bringing up the 1st year rule, you seem to imply a Buyout would penalize ONGOING Social Security benefits if it exceeds the earnings cap. I asked Social Security recently if it would and was told they consider that a Special Payment because it comes after separating from service in the same way as accrued Annual leave is. I did mention it would go down on a W2 under wages, and has Social Security and Medicare taxes taken from it, and was told it still would not apply to the Earnings cap. Were they telling me wrong? Has the law changed? Or am I misunderstanding your position on this issue? Thanks.
To learn how the “first year rule” works, go to https://www.ssa.gov/benefits/retirement/planner/rule.html
Reg – My situation is different than the above examples in that I am to receive a VSIP payment that is distributed over 25 bi-weekly payments ($1600 each) but I am retiring at the age of 57. I will not be collecting SS benefits, however I will be receiving the annuity supplement that OPM provides to FERS retirees between MRA and age 62. OPM rules are that the annuity supplement will be reduced the same as if you are receiving SS benefits if you exceed the SSA earnings limit for any year. Will my annuity supplement be reduced, or will OPM consider the VSIP dollars paid to be a special payment and not included as post retirement earnings when calculating my earnings and applying the earnings limit rule?
Yes, your special retirement supplement will be reduced if you exceed the annual Social Security earnings limit. That limit applies even if you aren’t receiving a Social Security benefit. To see how and when the reduction applies, go to https://www.opm.gov/retirement-services/publications-forms/csrsfers-handbook/c051.pdf and scroll to Section 51A3.