Civil Service Retirement in Lieu of Social Security (CSRS)
If you are a CSRS retiree and reside here in our beautiful Oklahoma Iím sure you are aware of the tax break provided by the state in recent years. Beginning in 2007 the state taxable portion of our annuity has been decreased by 20% each year so that in 2011 the entire annuity for those of us who retired under CSRS will no longer be taxed. Prior to 2007, and continuing, there was a $10,000 tax adjustment that benefited retirees in several categories. This will continue and still applies to that portion of our CSRS annuity that remains taxable today.
For all the years I worked and some after I always did my own taxes. They were never that difficult but always time consuming trying to get all the proper records together and stay current on new changes. I finally decided in 2007 to let someone else figure the whole mess out and took my taxes in to one of our local neighborhood services. They, in fact, were the ones that pointed out the new change that would greatly benefit me as a CSRS retiree. Bottom line here is that this year after going in to have my return prepared and receiving some answers that didnít fit with what I thought I knew I decided to do a second review after I returned home. The amount credited on my 511-A line 3 did not come anywhere near the 60% adjustment I thought I should receive for 2009. I reviewed my entire return and came up with a laundry list of questions and requested a second appointment to resolve the issues. The second visit resulted in the correction of some of the issues I raised but still the explanation for the CSRS adjustment did not sit right. I was told by the preparer that yes, I could take the 60% reduction identified on the 511-A line 3 but was not then entitled to the additional adjustment on line 5. I walked out scratching my head again and came home and reread the instructions for the applicable parts of the 511-A. After scratching my head some more I decided to put the question to the folks that should know and forwarded my issue to the OTC. The response, Iím happy to say, was fast and validating. If you draw Civil Service Retirement in Lieu of Social Security (CSRS) you are entitled in 2009 to exclude 60% of that annuity from your Oklahoma taxable income. That is done on the Schedule 511-A, line 3A. The remaining 40% of your annuity, up to no more then $10,000 may be excluded on line 5A of the same form. If you file joint with another CSRS annuitant your exclusion on line 5A could be as much as $20,000 depending on the taxable annuity balance remaining for each annuitant after the line A3 exclusion.
Someone with a taxable CSRS annuity of $40,000 in 2009 would effectively only be taxed in our state on $6000 dollars of that annuity. 60% or 24,000 would be excluded on line A3 and $10,000 of the remaining $16,000 on line A5.
For 2010 that same $40,000 annuity will result in total exclusion for state taxes. $32,000 or 80% will be reflected on line A3 and the remaining $8,000 on line A5.
For 2007 and 2008 using the same $40,000 the results would be:
2007 Ė 20%: A3 = $8,000 A5 = $10,000 Remaining taxable: $22,000
2008 Ė 40%: A3 = $16,000 A5 = $10,000 Remaining taxable: $14,000
After realizing there were errors on my 2009 return I decided it would be wise to check the previous years. I found that in 2007 line A3 did not reflect any exclusion at all but that line A5 did include the $10,000 exclusion. The result being I was taxed on over $12,000 that I should not have been. The 2008 return was correctly completed and I must say that the 2007 is partially my fault because I should have checked it then. But then if youíve got to check every line and you are already getting all of the documents together yourself why are you paying someone to complete the form??
Needless to say I will be doing my own taxes next year or at least looking for someone else to grade! ;o)
Many thanks to Aaron Saunders of the Taxpayer Assistance Division/Problem Resolution, Oklahoma Tax Commission!
p.s. Please feel free to contact me if you have issues or questions with this article.