How is a FERS pension taxed? Federal tax, the tax-free part, and state tax

By the OnPAR Federal Retirement Education editorial team · Last updated November 9, 2026

Related: FERS pension and TSP taxes in 2026 · How your FERS pension is calculated · Is Social Security taxable with a pension? · FERS pension guides

Short answer: Your FERS pension is taxed by the IRS as ordinary income, except for a small tax-free slice that returns the retirement contributions you already paid tax on [1]. If you retired after November 18, 1996, the IRS requires the Simplified Method to split each payment: your total contributions divided by a fixed number of months based on your age at retirement [1]. OPM withholds federal tax unless you opt out, and whether your state taxes a federal pension depends on where you live [2] [4]. This page is education, not tax advice.

1. The federal rule: most of it is taxable

Part of each FERS annuity payment is a tax-free return of your own contributions (money that was already taxed when it came out of your paychecks). The rest is taxable [1]. The tax-free part is a fixed dollar amount. It stays the same even when your annuity grows with COLAs [1].

2. How the tax-free part is figured (Simplified Method)

Your OPM annuity statement shows your annuity starting date, gross monthly rate and your total contributions (your “cost”) [1]. The IRS tells you to divide that cost by the number from its table, based on your age on the annuity starting date [1]:

If your annuity includes a survivor benefit for your spouse, the IRS uses your combined ages instead: 110 or under = 410 months, 111–120 = 360, 121–130 = 310, 131–140 = 260, 141 or over = 210 [1].

Once you have recovered your whole cost, the entire annuity becomes taxable. In the IRS example, a $12,000 cost at $100 a month is recovered after 120 months [1].

3. Example with real numbers

The IRS’s own example: a retiree with a $1,000 monthly annuity, $31,000 in contributions and a survivor benefit for his wife (combined ages 122, so 310 months) has a tax-free amount of $100 a month ($31,000 ÷ 310). The other $900 a month is taxable [1].

Our illustration (made-up numbers, not a prediction): you retire at 62 with no survivor annuity, a gross annuity of $2,400 a month and contributions of $31,200.

The tax-free part would run for 260 payments, about 21.7 years. If the same retiree chose a spouse survivor benefit and the couple’s combined ages were 122, the divisor would be 310 and the tax-free part would be $100.65 a month instead of $120.00 [1].

What would the federal tax be? Take a single filer with no other income and the 2026 standard deduction of $16,100 [3]. Taxable income is $27,360 − $16,100 = $11,260. That is all in the 10% bracket (up to $12,400 for a single filer in 2026) [3], so the tax is about $1,126, roughly 3.9% of the annuity. Credits and other income would change this.

Add other income and it climbs. Suppose a single filer has a taxable pension of $54,000 plus $20,000 of traditional TSP withdrawals. Taxable income is $74,000 − $16,100 = $57,900. Using the 2026 brackets [3]: 10% on the first $12,400 ($1,240), 12% on the next $38,000 ($4,560), and 22% on the last $7,500 ($1,650), for about $7,450 in federal tax.

Don’t forget the 65+ extras: beginning in 2025, people 65 or older can take an extra $6,000 deduction ($12,000 if both spouses qualify), phasing out above $75,000 of modified AGI ($150,000 joint) [1].

4. Who figures the taxable amount: you or OPM?

For most nondisability retirees OPM has already figured the taxable amount using the Simplified Method and shows it on your Form CSA 1099-R [1]. OPM sends 1099-Rs by January 31 and posts them in Retirement Services Online [2]. But if Box 2a says “Unknown,” OPM did not calculate your tax-free portion. OPM lists these common reasons: disability retirement, retiring before November 19, 1996, voluntary contributions, an apportionment paid to a former spouse, interim pay status, survivor or workers’ compensation cases, and alternative annuity elections [2]. In those cases use IRS Pub 721’s worksheet or ask a tax professional.

5. Withholding: set it on purpose

• OPM withholds federal income tax from your annuity unless you choose no withholding [1].
• If you don’t give OPM a withholding election, it uses the default IRS amount of single with zero allowances. You are responsible for making sure enough is withheld [2].
• Change it in Retirement Services Online, by calling 1-888-767-6738, or by mail with a Form W-4P [2]. See how to use OPM Retirement Services Online.
• If too little is withheld you may owe tax and possibly a penalty unless you pay estimated tax [2]. The IRS generally expects estimated payments if you will owe $1,000 or more [1].

6. State taxes: it depends where you live

Federal law protects you if you move. A state generally cannot tax the retirement income of someone who is not a resident or domiciliary of that state, and this covers governmental plans and qualified plans [4]. So the state that matters is the one you live in when you receive the pension.

Rules vary widely. Here are five examples checked against state agencies. These are general summaries, so confirm details with your state:

OPM can withhold state tax only if your state participates 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 [2].

7. Special cases worth knowing

• Unused annual leave paid when you retire is taxed as wages in the year you get it [1].
• FERS disability annuity is taxed as wages until you reach minimum retirement age. After that the Simplified Method rules apply [1].
• Retired public safety officers can exclude up to $3,000 a year of health or long-term care premiums paid from a retirement plan; CSRS and FERS count [1].
• Refund of contributions if you leave early: your contributions aren’t taxable, but interest is unless you roll it over [2].

What to do next

1. Find your annuity statement (cost, starting date, gross monthly rate) or your latest CSA 1099-R in Retirement Services Online.
2. Check the federal withholding on your annuity early in the year and adjust with a W-4P if needed [2].
3. Look up your state’s rule for federal pensions at your state tax office.
4. Planning ahead? Estimate your pension with our pension calculator and read how your FERS pension is calculated.
5. Next up: how TSP withdrawals are taxed in How your FERS pension and TSP are taxed in 2026, and whether your Social Security will be taxable.

Questions and answers

Is my FERS pension taxable?

Yes. It is taxed as ordinary income by the IRS, except for a small tax-free part that returns the contributions you already paid tax on. If you retired after November 18, 1996 the tax-free part is figured with the Simplified Method (your cost divided by 260 months for most people retiring at 61 to 65 without a survivor benefit).

Do I have to pay state tax on my FERS pension?

It depends on your state. Federal law bars a state from taxing the retirement income of nonresidents, so only your state of residence matters. Florida has no income tax, Pennsylvania, Illinois and New York generally exempt qualifying or federal pensions, and California generally taxes it. Confirm with your state tax agency.

Why does my 1099-R say "Unknown" for the taxable amount?

OPM leaves Box 2a as "Unknown" when it did not calculate your tax-free portion. Common reasons are disability retirement, retiring before November 19, 1996, voluntary contributions, a former-spouse apportionment, interim pay, or an alternative annuity election.

Official sources

1. IRS Publication 721: Tax Guide to U.S. Civil Service Retirement Benefits
2. OPM: Tax Information for Annuitants
3. IRS: 2026 tax inflation adjustments (brackets and standard deduction)
4. 4 U.S.C. 114: Limitation on State income taxation of certain pension income
5. Florida Department of Revenue: personal income tax FAQ
6. Pennsylvania Department of Revenue: Gross Compensation (retirement benefits)
7. Illinois Department of Revenue: Pub-120, Retirement Income
8. New York Tax Department: TSB-M-89(9)I, Taxation of Federal Pensions
9. California FTB: Publication 1005, Pension and Annuity Guidelines

Checked against IRS, OPM, SSA and TSP sources on November 6, 2026. Education only, not legal, tax or financial advice. Your own situation may differ: check with a tax professional, OPM, the IRS or your state tax office. Not affiliated with OPM, the IRS, SSA, the TSP or any government agency.