Updated October 30, 2026. Quick answer: Publication 721 is the IRS guide to how federal income tax applies to civil service retirement benefits, mostly CSRS and FERS annuities, and the web edition is for 2025 returns. It says an annuity starting date after November 18, 1996 means you must use the Simplified Method, and it also covers the Thrift Savings Plan, rollovers and survivor annuities.
IRS worksheet walk-throughs: Pub 721 Worksheet B, Pub 721 Worksheet C and Pub 721 Worksheet D.
Quick reference
| Item | As the IRS publication states it |
|---|---|
| Simplified Method required when the annuity starting date is after (Introduction) | November 18, 1996 |
| Withholding rate on an eligible rollover distribution (Withholding certificate) | 20% |
| Withholding rate on a nonperiodic payment when no Form W-4R is completed (Withholding certificate) | 10% |
| Additional tax on early distributions from the TSP before age 59½ (Thrift Savings Plan) | 10% |
| Additional deduction for seniors age 65 or older beginning in 2025 (What’s New) | $6,000 (or $12,000 for married couples where both spouses qualify); phases out over modified adjusted gross income of $75,000 (single) or $150,000 (married filing jointly) |
| Withholding not required on eligible rollover distributions totaling less than (Rollover Rules) | $200 |
What the publication covers
The introduction says “This publication explains how the federal income tax rules apply to civil service retirement benefits received by retired federal employees (including those disabled) or their survivors.” The IRS page carries the cover line “For use in preparing 2025 Returns”.
On how an annuity is split, the introduction says “Part of the annuity benefits you receive is a tax-free recovery of your contributions to the CSRS or FERS.” It then adds “If your annuity starting date is after November 18, 1996, you must use the Simplified Method to figure the taxable and tax-free parts.”
The introduction also describes the Thrift Savings Plan this way: “You can defer tax on part of your pay by having it contributed to your traditional balance in the plan.”
Parts of the publication in plain words
- Part I, General Information: a refund of contributions, tax withholding and estimated tax, filing requirements, and Forms CSA 1099-R and CSF 1099-R.
- Part II, Rules for Retirees: the annuity statement, the annuity starting date, your cost, the Simplified Method, the General Rule, the 3-Year Rule, the alternative annuity option and lump-sum payments, reemployment after retirement, the Thrift Savings Plan and rollover rules.
- Part III, Rules for Disability Retirement and Credit for the Elderly or the Disabled.
- Part IV, Rules for Survivors of Federal Employees.
- Part V, Rules for Survivors of Federal Retirees.
- Worksheets A and B near the end, and the federal estate tax discussion.
The Part II opening says “This part of the publication is for retirees who retired on nondisability retirement.” The Part IV opening says “This part of the publication is for survivors of federal employees.”
Worksheets and tables inside it
- Worksheet A, Simplified Method, with Table 1 and Table 2 at the bottom for life expectancy in months, and completed examples for Bill Smith, David Brown and Diane Green.
- Worksheet B, Lump-Sum Payment, used with the alternative annuity option.
For line 3 of Worksheet A, the publication says “The number you enter on line 3 is the appropriate number from Table 1 or 2 representing approximate life expectancies in months.”
On this site, the Simplified Method worksheet page walks through the same method, and the FERS survivor benefit page covers the survivor choice that shows up in Table 2.
The figures that matter
On withholding, the publication says “For an eligible rollover distribution, the default withholding rate is 20%.” It also says “If you don’t complete Form W-4R, then for a nonperiodic payment, OPM must withhold federal income tax at 10%.”
On the limit on tax-free recovery, it says “If your annuity starting date is after 1986, the total amount of annuity income that you (or the survivor annuitant) can exclude over the years as a return of your cost can’t exceed your total cost.”
On the TSP, it says “Any money included in gross income from your TSP account before you reach age 59½ may be subject to the 10% additional tax on early distributions.”
The What’s New section says “Beginning in 2025, seniors age 65 or older may claim an additional deduction of $6,000 (or $12,000 for married couples where both spouses qualify).” The same passage adds “It phases out for taxpayers with modified adjusted gross income (MAGI) over $75,000 (single) or $150,000 (married filing jointly).”
On small rollover payments, it says “Withholding from an eligible rollover distribution paid to you isn’t required if the distributions for your tax year total less than $200.”
Where to go next
Publication 721 sends readers to Publications 575, 590-A, 590-B and 939 in its Useful Items list. On this site, Form 1040 lines 5a and 5b shows where annuity income is reported, Form W-4P covers pension withholding, and keeping the TSP or rolling it to an IRA covers the rollover question.
Where this comes from
The IRS page About Publication 721 opens with “Publication 721 explains how the federal income tax rules apply to civil service retirement benefits received by retired federal employees (including those disabled) or their survivors.” It links the PDF and eBook editions and the earlier revisions of the publication.
This page describes the web edition of Publication 721 (2025), Tax Guide to U.S. Civil Service Retirement Benefits, as served on irs.gov on October 30, 2026. The IRS can revise a publication after we read it, and the IRS page controls. General information, not tax or legal advice.
Common mistakes
- Thinking a newer retiree can choose the General Rule. The publication says “If your annuity starting date is after November 18, 1996, you can’t use the General Rule to figure the tax-free part of your CSRS or FERS annuity.”
- Expecting the tax-free part to last for life. The publication says “Annuity payments you or your survivors receive after the total cost in the plan has been recovered are generally fully taxable.”
- Assuming withholding can be turned off on every payment. The publication says “You can’t choose to have no tax withheld from eligible rollover distributions.”
- Treating a TSP withdrawal before age 59½ as free of extra tax. The publication says such money “may be subject to the 10% additional tax on early distributions.”
Related: IRS publications by number, Simplified Method worksheet, FERS survivor benefit election, Keep the TSP or roll it to an IRA, TSP withdrawal options, Form W-4P, Form 1040 lines 5a and 5b, pensions and annuities, and Publication 939 annuity worksheets I and II.
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Answer againSources
- IRS, Publication 721 (2025), Tax Guide to U.S. Civil Service Retirement Benefits (irs.gov): https://www.irs.gov/publications/p721
- IRS, About Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits (irs.gov): https://www.irs.gov/forms-pubs/about-publication-721
Read from the IRS pages linked above on October 30, 2026. General information, not tax or legal advice. The IRS publication and the instructions for your own form control, and your own facts decide the outcome.