Is a federal annuity subject to estate tax?

Two different taxes

People often mix up income tax on a federal annuity and estate tax on the same benefit. They are separate. Income tax applies to payments as they are received. Federal estate tax applies to the value of what the person owned or controlled at death, and the estate files Form 706 only if the total passes a filing threshold. Publication 721 mostly covers income tax, but includes a short estate tax section for federal retirement benefits.

What goes into the gross estate

The publication says the gross estate generally includes the value of all property beneficially owned at death. Examples it lists are salary or annuity payments accrued to an employee or retiree but unpaid before death, and the balance in the decedent’s TSP account. It also says the gross estate usually includes the value of death and survivor benefits payable under CSRS or FERS. If the employee left no one eligible for a survivor annuity, the lump sum of contributions plus interest payable to the estate or other beneficiary is included as well.

The Public Safety Officers’ Benefits death benefit is the exception the publication names: it is not includible in the decedent’s gross estate for federal estate tax purposes, and it is not income to the survivor.

The filing threshold in the publication

The publication says Form 706 must be filed for the estate of a citizen or resident alien who died in 2025 if the gross estate is more than $13,990,000. That figure includes adjusted taxable gifts made after 1976 and the specific exemption allowed for gifts made after September 8, 1976 and before 1977. This is the filing requirement, not a statement of how much tax is owed, and it applies to 2025 deaths. The publication does not give figures for other years, so look up the amount for the year of death.

As an illustration, an estate with a $4,200,000 gross estate (including a TSP balance and the value of annuity benefits) and $300,000 in adjusted taxable gifts totals $4,500,000. That is under $13,990,000, so no Form 706 filing requirement is triggered by the amount alone. Larger estates, or estates that want to make elections, may still file.

The marital deduction

The publication notes that the marital deduction removes from the gross estate the value of property included in it that passes to the surviving spouse. Generally there is no limit on the amount, and community property passing to the surviving spouse qualifies. This often matters for federal benefits, because a surviving spouse is commonly the beneficiary of the TSP and the survivor annuity.

Income tax deduction for estate tax paid

Retirement benefits accrued and payable to a retiree before death but paid to a survivor are income in respect of a decedent. If federal estate tax was paid on the estate, the survivor who must include that income can deduct the portion of the estate tax attributable to it. For this purpose, when the decedent died after the annuity starting date, the taxable portion of a survivor annuity, other than a child’s temporary annuity, counts as income in respect of a decedent. Publication 559 has the details.

What this does and does not answer

For most families the practical issue is income tax, not estate tax: survivor annuity payments are taxed under the rules on our survivor annuity page, and a beneficiary’s TSP payment is fully taxable except for Roth money, with a spouse able to roll it over. State estate or inheritance taxes are separate from this federal publication. For a large estate, talk to an estate attorney or CPA.

Sources

• IRS Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits (2025): Federal Estate Tax and Marital deduction (Part IV); Public safety officer survivors (Part IV, Dependents of public safety officers); Federal Estate Tax and Income Tax Deduction for Estate Tax Paid (Part V). Refer to Pub. 559, Survivors, Executors, and Administrators. 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.