Discover what deductions are taken from your gross FERS income. Deduction information for both current and retired federal employees.
Income Deduction Information for Federal Employees and Retirees
What Deductions Come Out of FERS Retirement Benefit?
The Federal Employees Retirement System (FERS) provides lifetime income to retired individuals who are eligible after a career with the federal government. However, like a paycheck, the monthly income is subject to deductions. Here are the items that might be subtracted from the gross amount:
- Survivor Benefits
- FEHB (health benefits) premiums
- FEGLI (life insurance) premiums
- FEDVIP (dental/vision) premiums
- FLTCIP (long-term care) premiums
- Taxes
This article will review these items in depth as well as looking at in-service pay deductions for FERS employees.
To estimate the gross amount of your future FERS benefit, try our free FERS calculator.
In-Service Pay Deductions for FERS, FERS-RAE, and FERS-FRAE
There are three types of federal employees under the current retirement system: traditional FERS (hired before 2013), revised annuity employees, “FERS-RAE” (hired in 2013), and further revised annuity employees, “FERS-FRAE” (hired in 2014 or later). All three categories pay 6.2% of their salary to Social Security and 1.45% for Medicare. But while regular FERS workers contribute 0.8% to the retirement fund, FERS-RAE contribute 3.1% and FERS-FRAE employees contribute 4.4%.
On top of that, there’s income tax withholding, any TSP (thrift savings plan) contributions, and also insurance premiums that could be deducted from a federal employee’s paycheck before reaching the net dollar amount. For more information, check out this article about paycheck reductions for current employees.
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Deductions from Gross Retirement Income
Understanding what reductions might impact your net FERS pension benefits is essential for federal employees developing a retirement plan. Here is more information about possible deductions to anticipate.
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Survivor Benefits
Federal employees who elect survivorship benefits upon retiring will have either 10% or 5% deducted from their gross retirement amount. Full survivor benefits cost 10% and the surviving spouse would receive 50% of the FERS pension if the original annuitant passes away. Partial benefits causes a reduction of 5% and the surviving spouse receives 25% of the pension.
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Health, Life, and Other Insurance Premiums
Like survivor benefits, these premiums are all dependent on whether you elected to participate in the given insurance program. First, there are FEHB premiums. Unless switching health plans, this amount should be the same as when working. The only difference is that health insurance premiums are paid with after-tax dollars in retirement while they were paid pre-tax while in-service. Second, there’s FEDVIP insurance for vision and dental insurance. Like FEHB, this amount should be about the same as when working unless a different plan is selected. The third possible deduction in this category are FEGLI premiums. Something to watch out for in retirement is the increasing price of FEGLI as you get older. Especially FEGLI B, these premiums can become very costly. If you choose reduced coverage upon retiring, 25% of FEGLI Basic and part A coverage can be kept at no additional cost. And lastly, if you have a federal LTC insurance policy, these premiums would also be deducted from your FERS annuity as well.
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What Taxes Apply to FERS Pension Payments?
Taxation is an important consideration for retirees receiving FERS Pension payments. Understanding the tax implications can help in planning and managing retirement income effectively.
Is my FERS Pension taxable?
Yes, the FERS Pension is subject to federal income tax. The pension payments are considered taxable income, and retirees must report them on their federal tax returns. The amount of tax owed will depend on the retiree’s total income and tax bracket.
How is federal income tax applied to my FERS Pension?
Federal income tax is applied to the gross pension amount received from the FERS Pension Plan. Retirees can choose to have federal income tax withheld from their monthly pension payments, similar to how taxes are withheld from a regular paycheck. This helps in managing tax liabilities and avoiding a large tax bill at the end of the year.
Learn all about FERS, TSP, FEHB, FEGLI, and more at our 3 Hour Federal Retirement Webinars.
The FERS Pension Calculation and Social Security Benefits
Will my FERS Pension reduce my Social Security benefits?
In most cases, the FERS Pension does not reduce Social Security benefits. Federal employees covered under FERS pay into the Social Security system, and their benefits are calculated based on their earnings history. However, certain provisions, such as the Windfall Elimination Provision (WEP), may affect Social Security benefits for those who have worked in jobs not covered by Social Security.
How is my monthly FERS Pension payment calculated?
The monthly FERS Pension payment is calculated based on a formula that considers the retiree’s years of service and high-three average salary. The high-three average salary is the highest average basic pay earned during any three consecutive years of service. The formula typically involves multiplying the high-three average salary by a percentage factor (usually 1% or 1.1%) and then multiplying by the number of years of service. This calculation provides the gross pension amount, which is then subject to deductions for taxes and any elected survivor benefits.
Check out our comprehensive FERS calculator to estimate your retirement income
Reach Out to Us!
If you have additional federal benefit questions, contact our team of CERTIFIED FINANCIAL PLANNER™ (CFP®) and Chartered Federal Employee Benefits Consultants (ChFEBC℠). At PlanWell, we are federal employee financial advisors with a focus on retirement planning. Learn more about our process designed for the career fed.
Preparing for federal retirement? Check out our scheduled federal retirement workshops. Sign up for our no-cost federal retirement webinars here! Make sure to plan ahead and reserve your seat for our FERS webinar, held every three weeks. Want to have PlanWell host a federal retirement seminar for your agency? Reach out, and we’ll collaborate with HR to arrange an on-site FERS seminar.
Want to fast-track your federal retirement plan? Skip the FERS webinar and start a one-on-one conversation with a ChFEBC today. You can schedule a one-on-one meeting here.
