How the FERS pension and TSP are taxed in 2026

Last updated November 1, 2026

Published November 1, 2026 · By the OnPAR Federal Retirement Education editorial team · Last reviewed Nov 2026

Short answer: Your FERS (or CSRS) pension is taxed as ordinary income by the IRS, except a small tax-free part that returns the retirement contributions you already paid tax on. Traditional TSP withdrawals are fully taxable. Qualified Roth TSP withdrawals are tax-free. OPM withholds federal tax from your annuity unless you choose otherwise. The TSP withholds federal tax but not state tax (IRS Pub 721, OPM, TSP tax booklet).

Your pension: mostly taxable, partly tax-free

The IRS says each monthly annuity payment has two parts: a tax-free part that returns your "cost" (the retirement contributions taken from your pay after tax, shown on your OPM annuity statement) and a taxable part (everything else). If your annuity started after November 18, 1996, you must use the Simplified Method to figure the tax-free part (IRS Pub 721). OPM has a calculator for the tax-free portion on its Annuity Payments page.

Because FERS employees contribute only 0.8% to 4.4% of pay, the tax-free part is usually small. CSRS employees contributed 7%, so their tax-free part is larger.

Federal withholding from your annuity

• OPM withholds federal income tax unless you choose not to (IRS Pub 721).
• OPM says that unless you tell it otherwise, it uses the default IRS withholding of single with zero allowances. You are responsible for making sure enough is withheld (OPM).
• Change it in Retirement Services Online, by calling OPM at 1-888-767-6738, or by mailing a Form W-4P with your claim number.
• During interim payments, OPM withholds only federal tax (OPM).

State tax on your annuity

OPM can withhold state tax only if your state takes part in its State Tax Withholding Program. You choose a whole-dollar monthly amount of at least $5. OPM can't set up state withholding during interim payments (OPM). Whether your state taxes federal pensions at all is a question for your state tax office.

Your 1099-R

OPM sends Form CSA/CSF 1099-R by January 31. It's available in Retirement Services Online by January 31. If you have an email on file, OPM will email it instead of mailing it unless you set your preference to postal mail (OPM).

How TSP withdrawals are taxed

• Traditional balance: taxed as ordinary income when you take it, unless you roll it to a traditional IRA or another eligible plan (IRS Pub 721).
• Roth balance: qualified Roth distributions are tax-free because you already paid tax on the contributions (IRS Pub 721).
• Withholding: 20% for eligible rollover distributions (you can't lower it), 10% for other nonperiodic payments, and the W-4P tables for periodic payments such as installments of 10 years or more (IRS Pub 721, TSP).
• Direct rollovers to a traditional IRA or eligible plan have no withholding. Rolling a traditional balance to a Roth IRA is taxable in that year (TSP).
• No state withholding: the TSP doesn't withhold state or local tax, but it reports payments to your state (TSP).
• 1099-R: the TSP sends a separate 1099-R by January 31.

The 10% early withdrawal penalty

Taxable TSP money taken before 59½ may owe an extra 10% tax. The IRS lists exceptions, including if you separate during or after the calendar year you turn 55, or are a qualified public safety employee who separates in or after the year you reach 50 or complete 25 years of service. TSP annuity payments aren't subject to it (IRS Pub 721).

Required minimum distributions

The IRS says required minimum distributions generally start at age 73 (IRS Pub 721).

2026 federal tax brackets

For tax year 2026 (returns filed in 2027), per the IRS:

Standard deduction 2026: $16,100 single, $32,200 married filing jointly, $24,150 head of household.

New senior deduction: for 2025 through 2028, people 65 or older can deduct an extra $6,000 ($12,000 if both spouses qualify). It phases out above $75,000 of modified AGI ($150,000 joint) and is available whether or not you itemize (IRS).

Retired public safety officers: $3,000 health premium exclusion

Eligible retired public safety officers can exclude up to $3,000 a year of health or long-term care premiums paid from a government retirement plan. CSRS and FERS count as eligible plans (IRS Pub 721).

This page is general education, not tax advice. Check your own situation with a tax professional, and see our OPM payment schedule and FERS retirement calculator.

Questions and answers

Is my FERS pension taxable?

Yes, mostly. The IRS says each payment has a tax-free part that returns your after-tax retirement contributions, figured with the Simplified Method, and the rest is taxable.

Does OPM withhold taxes from my annuity?

OPM withholds federal income tax unless you choose otherwise, using single with zero allowances by default. State tax is withheld only if your state participates and you choose an amount of at least $5.

How much does the TSP withhold?

The IRS says 20% for eligible rollover distributions, 10% for other nonperiodic payments, and W-4P tables for periodic payments. The TSP does not withhold state tax.

Can I take TSP money before 59 1/2 without the 10% penalty?

The IRS lists exceptions, including separating from service during or after the calendar year you turn 55.

What are the 2026 tax brackets?

The IRS 2026 rates are 10%, 12%, 22%, 24%, 32%, 35% and 37%; the 12% rate starts above $12,400 single or $24,800 married filing jointly.

Official sources

• OPM Retirement Services
• Thrift Savings Plan (TSP.gov)
• Social Security Administration (SSA.gov)
• Federal Register and eCFR Title 5