One of the little-known benefits for Federal employees is the Federal Retirement System (FERS) Annuity Supplement. This benefit is available to those Federal employees in the Federal Employee Retirement System who plan to retire before the age of 62 and need to supplement their retirement income fund.
The FERS Annuity Supplement was established to provide you with a level of income before age 62 equivalent to what you will receive at age 62 as part of your Social Security benefit.
To calculate the amount of your supplement, you must know your years of creditable service and your Social Security benefit at age 62.
Just like Social Security, the amount of your supplement can be reduced if you work after you retire and you earn more than the earned income limit. Earned income is any income you receive that is reported on a W-2. In 2019, the Earned Income limit was $17,640. If you exceed this limit, your supplement will be reduced by $1.00 for each $2.00 you earn over the limit.
Your supplement is also subject to taxes depending on your combined income level. Combined income includes earned income, your regular FERS pension, any TSP withdrawals, investment earnings, alimony, etc.
For example, if you are married and your combined income exceeds $32,000 but is less than $44,000, then 50% of your supplement is subject to Federal Income Tax. If your combined income is greater than $44,000, 85% of your supplement will be taxed.