Contents Important Change for 1999  ............................... 1 Introduction  ........................................................ 1 Part I General Information  ......................................... 2 Part II Rules for Retirees  ............................................ 4 Part III Rules for Disability Retirement and Credit for the Elderly or the Disabled  ....................... 15 Part IV Rules for Survivors of Federal Employees  ...... 17 Part V Rules for Survivors of Federal Retirees  .......... 21 How To Get More Information  .......................... 23 Simplified Method Worksheet  ........................... 25 Worksheet for Lump-Sum Payment  ................. 26 Index  .................................................................... 27 Important Change for 1999 Photographs of missing children.   The Internal Rev- enue Service is a proud partner with the National Cen- ter for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1–800–THE-LOST (1–800–843–5678) if you recognize a child. Introduction This publication explains how the federal income tax rules apply to civil service retirement benefits received by retired federal employees (including those disabled) or their survivors. These benefits are paid primarily under the Civil Service Retirement System (CSRS) or the Federal Employees' Retirement System (FERS). Tax rules for annuity benefits. Part of the annuity benefits you receive is a tax-free recovery of your con- tributions to the CSRS or FERS. The rest of your ben- efits is taxable. If your annuity starting date is after November   18,   1996,   you   must   use   the   Simplified Method to figure the taxable and tax-free parts. If your annuity starting date is before November 19, 1996, you could have chosen to use the Simplified Method or the General Rule. See Part II, Rules for Retirees. Thrift Savings Plan. The Thrift Savings Plan (TSP) provides federal employees with the same savings and tax  benefits  that  many  private  employers  offer  their employees. This plan is similar to private sector 401(k) Department of the Treasury Internal Revenue Service Publication 721 Cat. No. 46713C Tax Guide to U.S. Civil Service Retirement Benefits For use in preparing 1999  Returns