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.