Federal Employee Buyout: Eligibility, Payment, and Pension Impact

A federal employee buyout, formally a Voluntary Separation Incentive Payment (VSIP), is a lump-sum payment of up to $25,000 that an executive branch agency offers to encourage you to resign or retire voluntarily during a downsizing or restructuring.¹ The amount depends on your years of service and pay, and taking one bars you from federal reemployment for five years unless you repay the full gross amount first.²

Who Qualifies

Two baseline requirements come first. You must hold an appointment without a time limit, meaning a career or career-conditional position rather than a temporary or term appointment, and you must have worked continuously in the executive branch for at least three years.¹ Your specific position also has to fall within the scope of your agency’s approved VSIP plan, meaning your job series, grade, location, or organizational unit has been designated as part of the restructuring.³

Several categories are excluded even if you clear those thresholds:

Reemployed annuitants already drawing a federal pension while working.
Employees who qualify or would qualify for disability retirement.
Employees who have received a decision notice of separation for misconduct or poor performance.
Anyone who has already collected a VSIP from any federal agency.
Employees who received a student loan repayment benefit within the 36 months before separation.
Employees who received a recruitment or relocation incentive within the 24 months before separation.
Employees who received a retention incentive within the 12 months before separation.¹

The last three trip people up. The clock runs backward from your separation date, not from when the incentive agreement formally ended. If a retention incentive landed 11 months ago, you’re out. Thirteen months ago, you’re in. Check the dates before assuming you qualify.

How Much You Actually Get

The payment equals the lesser of two figures: the severance you would have received if you had been involuntarily separated, or a cap set by the agency head that cannot exceed $25,000.³ Most agencies set the cap at the full $25,000, so for anyone with meaningful service, the statutory ceiling is what controls. Younger employees or those with only a few years in may see a smaller severance-based figure instead.

The severance calculation under 5 U.S.C. § 5595(c) gives one week of basic pay for each of your first 10 years of civilian service and two weeks per year beyond 10, with an age adjustment adding 10 percent of the basic allowance for each full year over age 40 at separation (partial years credited at 2.5 percent per full quarter).⁴ 5

The $25,000 is gross, not net. The IRS treats a buyout as supplemental wages, so your agency withholds federal income tax at a flat 22 percent, plus Social Security (6.2 percent) and Medicare (1.45 percent).⁶ On a $25,000 payment, roughly $7,400 comes off the top before any state tax, leaving something in the range of $17,000 to $18,000 in take-home pay. The federal income tax portion is trued up when you file your return, so if your total year-of-separation income is lower than usual, some of that withholding can come back as a refund.

The Five-Year Reemployment Rule

Here is the part that changes the decision. If you accept a buyout and then take any compensated federal job within five years of your separation date, you must repay the entire gross amount before your first day of work.² The full pre-tax amount. If you received $25,000 and took home $18,000, you still owe $25,000.⁷

The rule covers every form of compensated federal work: full-time, part-time, temporary, and consulting. If the check comes from the federal government, the repayment obligation kicks in.

Waivers exist but the bar is high. The head of a hiring agency can ask OPM to waive repayment only if you possess unique abilities and are the only qualified applicant available. A separate emergency exception applies when there is a direct threat to life or property and your specific skills are needed on a temporary basis to address it.² These waivers are rare. If there is any realistic chance you might want back into federal service within five years, weigh that heavily before signing.

Pairing a Buyout With Early Retirement

Agencies often offer buyouts alongside Voluntary Early Retirement Authority (VERA), and the combination is usually worth far more than the VSIP alone. A buyout by itself is a resignation with a check attached. Combined with VERA, it becomes a retirement with a check attached, and that difference shapes your pension, health coverage, and financial position for decades.

VERA eligibility requires that you be at least 50 with 20 years of creditable service, or any age with at least 25 years of service.⁸ Under FERS, no age-reduction penalty applies to a VERA retirement. The annuity is computed like a regular retirement: 1 percent of your high-three average salary for each year of service, or 1.1 percent if you retire at 62 or later with at least 20 years.⁹

Not every buyout comes with a VERA option. The agency has to separately request and receive VERA authority from OPM, and it is possible to qualify for one program but not the other. When you see a combined offer announced, verify that you meet each set of requirements independently.

What Happens to Your Pension, Health Coverage, and TSP

The lump sum is one number in a much larger picture.

Pension

Taking a VSIP without meeting any retirement eligibility (VERA included) is a resignation, not a retirement. Your FERS contributions can stay in the system and support a deferred annuity. With at least five years of creditable civilian service, you can claim an unreduced annuity starting at 62. With at least 10 years, you can claim at your minimum retirement age, though the annuity is reduced by 5 percent for each year you are under 62 unless you postpone it until 62.¹⁰ To preserve the deferred annuity, leave your contributions in the system rather than withdrawing them.

A 45-year-old with 20 years of service and a high-three of $95,000 would be entitled to a FERS annuity around $19,000 per year, but would wait until 62 to collect it without reduction. Seventeen years without a pension check. VERA, by contrast, starts the annuity immediately.

Health Insurance

Retire under VERA and you can carry Federal Employees Health Benefits coverage into retirement, as long as you were enrolled in FEHB for the five consecutive years immediately before retirement. Resign without retiring and you lose FEHB. You can elect temporary continuation of coverage for up to 18 months, but you pay the full premium plus a 2 percent administrative charge with no government contribution.¹¹ For many employees the health coverage differential alone makes VERA more valuable than the $25,000.

Thrift Savings Plan

Your TSP stays with you after separation if you have a vested balance of at least $200. You can leave it invested, take partial or full distributions, set up installment payments, or buy a TSP annuity.¹² Watch the 10 percent early withdrawal penalty tax on distributions before age 59½, unless an exception such as life-expectancy-based installments applies. Rolling into an IRA avoids immediate tax and adds investment flexibility, at the cost of the TSP’s low administrative fees.

Applying for a Buyout

Buyout windows are not open-ended. An agency announces a defined period during which employees in designated positions may apply, typically running a few weeks to a few months. There is no standing offer to accept at your leisure.

Applications go through your agency’s HR office, which confirms eligibility and coverage under the approved plan. You propose a separation date inside the authorized window. Agencies can deny applications if workforce reduction targets have been met or if losing your specific position would create an operational gap. After approval you sign a separation agreement covering the incentive amount, separation date, and the five-year repayment obligation. The payment is disbursed as a lump sum through payroll, usually on or shortly after your separation date.¹

Unemployment Benefits Are Not a Given

Because a VSIP is a voluntary separation, state unemployment agencies may treat it as a quit rather than a layoff. Most states require that you be out of work through no fault of your own, and voluntarily resigning with an incentive attached can disqualify you. Some states allow benefits on a good-cause showing, such as a credible threat of imminent layoff, but standards vary and approval is not guaranteed. Do not build unemployment benefits into your post-separation budget without confirming your state’s rules first.

Not the Same as the 2025 Deferred Resignation Program

If you have heard “federal buyout” used to describe the Deferred Resignation Program (DRP) launched in early 2025, which offered employees the option to resign and receive paid administrative leave through the end of September 2025, that program was a different mechanism.¹³ The DRP was a one-time administration initiative, not the permanent statutory VSIP authority under 5 U.S.C. §§ 3521–3525, and it did not carry the same eligibility restrictions or $25,000 cap. Traditional VSIP is governed by 5 CFR Part 576 and requires an OPM-approved restructuring plan.¹⁴ If your agency is currently offering a buyout, the offer letter should identify which authority it falls under. Read it before you decide.

1
U.S. Office of Personnel Management. Voluntary Separation Incentive Payments
2
Office of the Law Revision Counsel. 5 USC 3524 – Effect of Subsequent Employment With the Government
3
Office of the Law Revision Counsel. 5 US Code 3523 – Authority to Provide Voluntary Separation Incentive Payments
4
Office of the Law Revision Counsel. 5 USC 5595 – Severance Pay
5
National Finance Center. Severance Pay
6
Internal Revenue Service. Publication 15 – Employer’s Tax Guide – Section: 7. Supplemental Wages
7
Department of Energy. Post-Employment Buyout Restrictions
8
U.S. Office of Personnel Management. Voluntary Early Retirement Authority
9
Office of the Law Revision Counsel. 5 USC 8414 – Early Retirement
10
U.S. Office of Personnel Management. Types of Retirement
11
U.S. Office of Personnel Management. I’m Leaving Federal Service (Not Retiring)
12
Thrift Savings Plan. Withdrawals in Retirement
13
U.S. Office of Personnel Management. What They Got Wrong About the Deferred Resignation Program
14
eCFR. 5 CFR Part 576 – Voluntary Separation Incentive Payments