Q. I am a FERS retiree from the federal government in March 2011. I received the VERA/VSIP in a lump sum of $25,000 ($18,000 after taxes). In July, I withdrew a lump sum from my TSP to pay off my mortgage, that amount was also taxed. Since the lump sums I received were taxed already, how is it that I have to claim them as income? I am preparing my 2011 taxes and those lump-sum payments make it appear that I earned more than $100,000 in 2011. It seems to me that I am paying taxes twice on the money. Am I right? Would it have been more to my advantage if I had received the lump sums this year (2012)?
A. You were not taxed on the money before you received it. Money was withheld against your tax liability. You must claim the gross amounts as part of your income, which they are, and you will also receive credit for the withholding against your tax bill.