Deductions from lump-sum payment of unused annual leave


Q. What are the deductions/withholdings from the lump-sum payment of unused annual leave at retirement? Obviously, federal and state taxes will be deducted, but what about federal pension, Thrift Savings Plan, federal health and life insurance, etc.? I plan to take out a loan from my TSP which will have to be repaid when I retire, so I want to make sure I have sufficient funds from payment of my annual leave balance at retirement to pay off the loan. Therefore, I need to know what deductions will be.

A. The short answer is that your lump-sum payment for unused annual leave will automatically be reduced by 25 percent to cover potential tax liabilities. Out of that 25 percent, deductions will be taken for taxes — federal, state (if applicable), and local (if applicable) — but not any premiums for health or life insurance, which will be deducted from your final paycheck or first annuity payment, whichever is applicable.


About Author

Reg Jones was head of retirement and insurance policy at the Office of Personnel Management. Email your retirement-related questions to

Leave A Reply