Questions & Answers

Q&A

EMPLOYMENT

THE FOLLOWING QUESTIONS

& ANSWERS were compiled by NARFE’s Federal Benefits Institute experts. NARFE does not provide legal, financial planning or tax advice or assistance.

LEAVE AND EARNINGS STATEMENT

QWhat is the significance of the block on my Leave & Earnings Statement (LES) titled “cumulative retirement”? Should I be concerned if the amount changes?

AMost payroll providers will include the cumulative retirement deductions withheld during your appointment under the same payroll office on your LES. This is the running total of your retirement contributions made from your basic pay under CSRS or FERS while you are employed at the same payroll office.

When you transfer from one agency to another, your payroll records are closed and forwarded to the Office of Personnel Management (OPM) for record keeping, and the amount of retirement contributions will start over at your new payroll office. Your payroll records are also closed and reported to OPM when you resign.

Since these contributions were paid with after-tax dollars, these contributions will not be subject to tax if refunded, and you will be eligible to receive a tax-free portion of your retirement if you later apply for CSRS or FERS retirement benefits. OPM will provide the total amount after your annuity is finalized. The total may include deposits and/or redeposits you may have paid into CSRS or FERS, including deposits for post-1956 military service, along with any interest you paid on service credit deposit payments.

You will find details on how to report the tax-free portion of your retirement in IRS Publication 721: https://www.irs.gov/pub/irs-pdf/ p721.pdf.

WINDFALL ELIMINATION PROVISION

QI am going to retire at the end of the year after completing a full career of civilian service covered under CSRS. I was a National Guard reservist for a number of years as well, and I paid FICA taxes during my service with the Guard. I will be eligible for both Social Security retirement as well as CSRS. I am not sure I understand the Windfall Elimination Provision that seems to penalize me for having earned both retirement benefits. Please explain. A Your CSRS retirement, which was earned from service not covered by FICA taxes, can impact the amount of Social Security you will receive due to the Windfall Elimination Provision (WEP). Many CSRS retirees find that their Social Security benefit will be computed under a modified formula that reduces the amount of the Social Security benefit due to their CSRS retirement. If you have completed more than 20 years of substantial earnings subject to the FICA tax, there is an exception to the WEP. This WEP fact sheet provides additional details and lists what SSA considers such earnings by year: https://www. ssa.gov/pubs/EN-05-10045. pdf. There is also a calculator to compute your Social Security benefit using the modified WEP formula at https://www.ssa.gov/ benefits/retirement/planner/ anyPiaWepjs04.html.

The rules for FERS are different. If you have “nondeduction” service under FERS, this time is not creditable for retirement eligibility or computation of your FERS basic annuity benefit. This service will be included for leave