U.S. · Federal civil service retirement
Are voluntary contributions taxed?
The money comes back tax free; the interest on it is taxable.
Mostly no on the contributions, yes on the interest. Under Publication 721, voluntary contributions are the extra amounts you paid into the federal retirement fund beyond the regular deductions. If you take a refund, the interest is taxable unless you roll it into a traditional IRA or another qualified plan, and 20% is withheld on the interest if you do not roll it directly. If you take an additional annuity instead, it is taxed under the regular annuity rules, separately.
Refund of contributions and interest
Result
What counts as a voluntary contribution
Publication 721 defines voluntary contributions as contributions to the retirement fund made in addition to the regular contributions deducted from your salary. It also counts regular contributions withheld after you already have the years of service needed for the maximum annuity allowed by law. They are not the same as your own employee contributions to the Thrift Savings Plan, which follow different rules.
Taking a refund
If you take a refund of voluntary contributions plus accrued interest, the publication says the interest is taxable in the year it is distributed, unless you roll it over to a traditional IRA or another qualified retirement plan. Your contributions themselves were made from pay that was already taxed, so they are returned without tax. If you do not have OPM transfer the interest in a direct rollover, 20% is withheld on it. The interest does not qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option, and it may be subject to the 10% additional tax on early distributions if you separate from service before the calendar year you reach age 55, or before the earlier of 50 or 25 years of service for a qualified public safety employee.
A general refund of regular contributions is handled the same way. The publication notes that for CSRS service after 1956, interest is paid only if your service was more than one year but not more than five, so many CSRS refunds include no interest and owe no tax.
Taking an additional annuity instead
If you elect an additional annuity from your voluntary contributions, the publication says it is treated separately from the annuity based on regular contributions, for figuring both the excluded and included parts. You still get one monthly check, but each year Form CSA 1099-R shows how much of the annuity came from each source. You figure the taxable and tax-free parts of the additional benefit with the same rules as a regular CSRS or FERS annuity, which for starts after November 18, 1996 means the Simplified Method with the voluntary contributions as the cost.
Worked example
As an illustration with made-up numbers: you leave service and request a refund of $6,000 of voluntary contributions plus $900 of interest. The $6,000 is returned tax free. The $900 of interest is taxable in the year distributed. If you let OPM pay it to you, it withholds 20% of the interest, which is $180. If instead you direct OPM to transfer the $900 to a traditional IRA, nothing is withheld and nothing is taxed until you take it out of the IRA. The calculator above runs these numbers for you.
If the employee dies before retiring
The publication adds a rule for survivors: if a CSRS employee dies before retiring, the voluntary contributions cannot provide an additional annuity to survivors. They are paid in a lump sum with accrued interest to the estate or other beneficiary, who generally includes the interest in income for the year it is distributed or made available. A surviving spouse, or a non-spouse using a direct transfer to an inherited IRA, can roll the interest over. Unrolled interest is generally withheld at 20%, or 10% if the beneficiary is not the surviving spouse.
Reporting
Report refunds and annuity payments on Form 1040 line 5a (total) and line 5b (taxable amount), and check the rollover box when applicable. Keep your OPM statements and the Form CSA 1099-R. Pub. 575 covers the lump-sum distribution and early distribution rules that the publication refers to.
Sources
- IRS Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits (2025): Retirement During the Past Year (Part II): Voluntary contributions; Additional annuity benefit; Refund of voluntary contributions. Refund of Contributions and Withholding from certain lump-sum payments (Part I). Voluntary contributions (Part IV). Read November 2, 2026.
Edition read: Publication 721 (2025), for use in preparing 2025 returns. Dollar limits and dates in this publication are for 2025; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it.
Frequently asked questions
Are voluntary contributions taxed?
The contributions come back tax free because they were paid from taxed pay. Interest paid with a refund is taxable unless rolled into a traditional IRA or qualified plan.
How much is withheld from a refund?
If the interest is not directly rolled over, 20% of the interest is withheld.
How is an additional annuity from voluntary contributions taxed?
It is treated separately from the regular annuity and figured with the same rules as other CSRS and FERS annuities.
Can the interest be rolled over?
Yes, to a traditional IRA or another qualified retirement plan. A direct rollover avoids the withholding.
Does the 10% early distribution tax apply?
It may, if you separate from service before the calendar year you reach age 55, with a public safety employee exception for the earlier of age 50 or 25 years of service.
Not tax advice
This page summarizes an IRS publication and is not tax, legal or financial advice. A CPA or an enrolled agent can confirm how a rule applies to your return. Everything runs in your browser; nothing you enter is sent anywhere.