Updated November 5, 2026. Quick answer: Worksheet C in Publication 721 (2025) limits the taxable amount of a CSRS, FERS or TSP payment received by a nonresident alien retiree or beneficiary. The otherwise taxable amount is multiplied by a fraction: U.S. Government basic pay other than tax-exempt pay for work outside the United States, over basic pay for all services.
When Worksheet C applies
The publication says “There is a limit on the taxable amount of payments received from the CSRS, the FERS, or the TSP by a nonresident alien retiree or nonresident alien beneficiary.” The method is “Figure this limited taxable amount by multiplying the otherwise taxable amount by a fraction.” “The numerator of the fraction is the retiree’s total U.S. Government basic pay, other than tax-exempt pay for services performed outside the United States.” “The denominator is the retiree’s total U.S. Government basic pay for all services.” It tells you which sheet to use: “To figure the limited taxable amount of your CSRS or FERS annuity or your TSP distributions, use Worksheet C.” “(For an annuity, first complete Worksheet A in this publication.)” Worksheet A feeds this sheet, and the return it goes on is Form 1040-NR.
Lines 1 to 5
| Line | What it asks |
|---|---|
| 1 | “Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Form CSA 1099-R or CSF 1099-R) or TSP distributions (from Form 1099-R)” |
| 2 | “Enter the total U.S. Government basic pay other than tax-exempt pay for services performed outside the United States” |
| 3 | “Enter the total U.S. Government basic pay for all services” |
| 4 | “Divide line 2 by line 3” |
| 5 | “Limited taxable amount. Multiply line 1 by line 4.” “Enter this amount on Form 1040-NR, line 5b” |
What counts as basic pay
The publication defines it: “Basic pay includes regular pay plus any standby differential.” “It doesn’t include bonuses, overtime pay, certain retroactive pay, uniform or other allowances, or lump-sum leave payments.”
The IRS examples
Example 1 in the publication is a nonresident alien who “performed all services for the U.S. Government abroad as a nonresident alien”, with a monthly annuity of $200, total basic pay of $100,000, all of it tax exempt. The taxable amount on Worksheet A is $720.
| Line | Entry | Amount |
|---|---|---|
| 1 | Otherwise taxable amount (Worksheet A line 9) | $720 |
| 2 | Basic pay other than tax-exempt pay for services outside the United States | 0 |
| 3 | Basic pay for all services | $100,000 |
| 4 | Line 2 divided by line 3 (computed) | 0 |
| 5 | Limited taxable amount: line 1 times line 4 (computed) | 0 |
The limited taxable amount is zero because the numerator is zero. Example 2 has “Your total basic pay for your services for the U.S. Government was $120,000; $40,000 was for work done in the United States and $80,000 was for your work done in a foreign country.” The taxable amount on Worksheet A is $1,980.
| Line | Entry | Amount |
|---|---|---|
| 1 | Otherwise taxable amount (Worksheet A line 9) | $1,980 |
| 2 | Basic pay other than tax-exempt pay for services outside the United States | $40,000 |
| 3 | Basic pay for all services | $120,000 |
| 4 | Line 2 divided by line 3, as the publication prints it (computed) | 0.333 |
| 5 | Limited taxable amount: line 1 times line 4 (computed) | $659 |
The publication enters 0.333 on line 4 and prints $659 on line 5. Carrying the fraction unrounded, $1,980 times $40,000 over $120,000, gives $660. The worksheet text printed in the publication carries no rounding instruction for line 4, so the example is the only guide to the order of rounding. If your own figures do not divide evenly, ask the preparer or the IRS how to round line 4.
Example with invented numbers
Illustration, not an IRS example. The inputs divide exactly. Every result is computed from invented inputs.
| Line | Entry | Amount |
|---|---|---|
| 1 | Otherwise taxable amount (invented) | $24,000 |
| 2 | Basic pay other than tax-exempt pay for services outside the United States (invented input for the computed lines below) | $30,000 |
| 3 | Basic pay for all services (invented) | $120,000 |
| 4 | Line 2 divided by line 3 (computed) | 0.25 |
| 5 | Limited taxable amount: line 1 times line 4 (computed) | $6,000 |
A quarter of the basic pay was for taxable work in the United States, so a quarter of the otherwise taxable $24,000 is taxable: $6,000.
Edition
This page reads Publication 721 (2025), Tax Guide to U.S. Civil Service Retirement Benefits, the file irs.gov served on 2026-11-05). Line numbers and letters belong to that edition, so check the label printed on the worksheet in your own copy before you follow a line reference.
Common mistakes
- Using Worksheet C for a U.S. citizen or resident alien. The limit is for a nonresident alien retiree or beneficiary.
- Putting all pay on line 2. Line 2 leaves out tax-exempt pay for services performed outside the United States.
- Including overtime, bonuses or lump-sum leave in either pay figure. The publication’s definition of basic pay leaves them out.
- Entering the result on Form 1040 instead of Form 1040-NR, line 5b.
Related: Form 1040-NR, Publication 721, and state tax on TSP withdrawals.
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Answer againSources
- Publication 721 (2025), Tax Guide to U.S. Civil Service Retirement Benefits: https://www.irs.gov/pub/irs-pdf/p721.pdf
- IRS, About Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits: https://www.irs.gov/forms-pubs/about-publication-721
Read from the IRS documents linked above on November 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.