First-year rule


Q. I have read conflicting views on whether the Voluntary Separation Incentives Payments (VSIPs) and annual leave payments are subject to the earnings test. Other sites report under Office of Personnel Management rules monies you earn in the year in which you retire are not subject. Does this mean if I retire in March and lump sum payment for annual leave and a VSIP is paid that year, it does not count against my supplement?

A. Lump-sum payments for unused annual leave and VSIPs are treated as earned income for tax and Social Security benefit purposes. However, their affect on your special retirement supplement will be lessened by the so-called “first-year rule.” See


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


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