Q. I’m a traditional CSRS employee with 35 years and no break in federal service. My retirement contributions have been taxed over the years through the bi-weekly payroll deductions. I also paid $5,000 to get credit for military time. When I retire, will some of my monthly annuity check be exempt from taxation since it is considered return of principal? How is this amount calculated?
A. Your answer is in the Internal Revenue Service’s Tax Guide to U.S. Civil Service Retirement Benefits. You can download a copy at www.irs.gov/pub/irs-pdf/p721.pdf.