Browsing: deduction

Disability and tax deduction from TSP funds

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Q. I recently retired from the federal government due to becoming permanently disabled at age 61. I received my disability approval from the Social Security Administration. I withdrew a portion of Thrift Savings Plan funds to cover expenses as a result of not being able to work. Why was 20 percent tax deducted from the distribution of funds at age 61 and with the legal purpose of being disabled? A. Because that is the default federal income tax withholding rate for the distribution. The money has been applied toward your tax liability for the year.

Social Security and tax deductions from annuity and TSP

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Q. When I retire, I will be 59½ and will have 30 years of service at the Postal Service. I will not have any earned income from that point on. I understand federal and state taxes will be taken out of my FERS annuity and any money I take out of my Thrift Savings Plan. Will I also have Social Security deducted from these two sources? Also, will my special retirement supplement and — when I turn 62, my SSI benefit — also be subject to federal and state taxes? A. Mike: Your TSP withdrawals are subject to income taxation,…

Combat-zone tax-exempt contributions

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Q. I have both a civilian and military Thrift Savings Plan account because I was mobilized for part of 2011-12. Because I was in a combat zone, much of my income was tax exempt (CZTE). The military allowed me to contribute that tax-exempt income into my TSP. It is not a tax deduction because the income wasn’t taxable in the first place. However, they also made contributions from my taxable income. I thought it was all from my CZTE. When I returned to my civilian job, I began to contribute and maxed out my contributions, not knowing about the earlier…

VSIP and re-employment

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Q. I worked for the federal government for over 28 years. I retired last year under Voluntary Separation Incentive Pay provisions June 30, 2012. I am considering re-employing/reinstating. Am I eligible to return to work on July 1, one year after retiring? Can I repay the VSIP in cash or in payments? I read once that you can make payments for up to 36 months upon re-employment but am not sure whether this is correct. I understand the VSIP must be paid back before I return to work. Upon re-employing with the government, will I be able to contribute to…

Early retirement and IRA

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Q. I will be retiring Jan. 31 from the Postal Service. In May, I will receive $10,000 and in May 2014, I will receive $5,000. Can this compensation be used to fund an IRA in years 2013 and 2014 even though I will be retired and not working another job? Is this considered earned income? I know federal and state tax will be deducted. I don’t know yet if Social Security will be deducted, too. What are your thoughts on this? A. I believe that these payments are considered retirement income, and, therefore are not considered the basis for IRA contributions, but you should consult…

Taxed twice at 59 1/2?

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Q. In January 2011, I was forced into retirement at age 62 due to a surgery that left me visually impaired. I took a partial withdrawal to pay off personal expenses. The Thrift Savings Plan deducted 20 percent for federal taxes before the distribution was made. However, when federal taxes were filed jointly, I owed $16,000 in taxes due to the TSP money. Why did I pay taxes twice when I met the 59½ age rule? A. That’s a question that only your tax-preparer can answer, although I doubt you paid taxes twice, and there would have been no early withdrawal…

IRA deduction and IRS

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Q. I retired from the Defense Department on Dec. 31, 2009, and received my final paycheck in 2010. I purchased a traditional IRA for 2010, and claimed an income tax deduction for that IRA. I just received notice from the Internal Revenue Service that they have disallowed the deduction stating that according to my W-2 from DoD, I was covered by an employer retirement plan in 2010. My agency payroll office tells me an amount of approximately $13 was added to my retirement account based on my final paycheck, which I received in 2010. The IRS suggested I have my agency…

Donating annual leave

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Q. I recently donated annual leave for a fellow postal worker who has been injured.  Is the value of this donation tax deductible? A. This is really a question for your tax preparer or a CPA, but I doubt that it would be deductible since it has not yet been taxed as income.