Survivor Annuity Taxes: Federal and State Rules for OPM Benefits

The Tax-Free Portion

Not every dollar of a federal survivor annuity is taxable. A portion of each monthly payment represents the tax-free return of the deceased retiree's previously-taxed retirement contributions. The employee paid into CSRS or FERS with after-tax payroll deductions during their career, and those contributions come back to the survivor tax-free through the annuity.

The tax-free monthly amount is calculated using the Simplified Method Worksheet in IRS Publication 721. You divide the retiree's total unrecovered after-tax contributions by a factor based on the survivor's age at the time of the retiree's death. That gives you a fixed monthly exclusion.

Once the entire contribution basis is recovered — meaning the total tax-free amounts received over time equal the original contributions — every subsequent payment becomes fully taxable.

OPM's Two Tax Forms

After a retiree's death, OPM issues two separate 1099-R forms for the tax year:

Form CSA 1099-R — issued under the deceased retiree's Social Security number, reporting gross annuity payments made from January 1 through the date of death.

Form CSF 1099-R — issued under the surviving spouse's or beneficiary's Social Security number, reporting survivor annuity payments and any lump-sum accrued unpaid annuity payments.

The survivor files their regular tax return using the CSF 1099-R. The estate or final return of the deceased handles the CSA 1099-R.

Setting Up Withholding

File Form W-4P or OPM's Form W-4PSA with OPM to set federal income tax withholding on your survivor annuity. Without a withholding form on file, OPM withholds based on default rates, which may not match your actual tax situation.

You can update your withholding at any time through OPM's Services Online portal or by mailing a new W-4P to OPM Retirement Operations.

States That Don't Tax the Survivor Annuity

State tax treatment varies widely:

No state income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Survivors in these states pay only federal tax on their annuity.

Full exemption for federal pensions: Alabama, Hawaii, Illinois, Iowa (starting 2023), Kansas, Kentucky, Louisiana, Michigan, Mississippi, North Carolina (subject to the Bailey settlement for pre-1989 hires), Pennsylvania, and Wisconsin fully exempt civil service survivor annuities from state income tax.

Partial exemption or full taxation: The remaining states either tax the survivor annuity fully as ordinary income or offer partial exemptions based on age, income, or other thresholds.

State tax laws change regularly. The Federal Retiree Death Benefits Guide includes a tax basis recovery worksheet and covers how to calculate the exact tax-free portion of each payment under the IRS Simplified Method — so the survivor doesn't overpay federal taxes on money that should be excluded.

The Year of Death: Two Returns

In the year the retiree dies, the surviving spouse may need to decide whether to file a joint final return with the deceased or file separately. Filing jointly often produces a lower total tax bill because it uses joint tax brackets and captures the full standard deduction for two people. The surviving spouse can file jointly for the year of death only.

For the following year, the survivor files as a qualifying surviving spouse (if they have a dependent child) or as single. This bracket shift can meaningfully increase the tax burden on the survivor annuity — something worth discussing with a tax adviser before the first filing deadline after the death.

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