A federal employee buyout, formally a Voluntary Separation Incentive Payment (VSIP), is a lump-sum payment of up to $25,000 that an agency offers to encourage you to leave voluntarily during a restructuring or downsizing. Agencies use it instead of a Reduction in Force, and for you the deal is simple on its face: cash now in exchange for your position, with real strings attached if you ever come back to federal service.
Who Can Take a Buyout
Two things have to be true. You must hold a permanent appointment and have worked continuously for the federal government for at least three years under 5 U.S.C. § 3521.1Office of the Law Revision Counsel. 5 US Code 3521 – Definitions And your specific position, grade, or organizational unit has to be inside your agency’s approved buyout plan. Long service alone doesn’t get you in; if your job isn’t targeted, you can’t volunteer.
Some employees are shut out entirely:
- Re-employed annuitants already collecting a federal pension.
- Anyone who has or could qualify for disability retirement under FERS or CSRS.
- Employees who’ve received a decision notice for involuntary separation based on misconduct or poor performance.1Office of the Law Revision Counsel. 5 US Code 3521 – Definitions
The program is built for workforce reshaping, not as a side door for people already on their way out.
How Much You Actually Get
The payment is the lesser of your severance pay entitlement or a cap set by the agency head, which cannot exceed $25,000.2Office of the Law Revision Counsel. 5 USC 3523 – Authority to Provide Voluntary Separation Incentive Payments That ceiling has sat at $25,000 since the buyout program started in the 1990s and has never been adjusted for inflation. For most employees with more than a few years of service, the severance calculation runs well past the cap, so the $25,000 controls.
The $25,000 is a gross number. The IRS treats a buyout as supplemental wages, so your agency withholds federal income tax at a flat 22 percent.3Internal Revenue Service. Publication 15, (Circular E), Employers Tax Guide Social Security (6.2 percent) and Medicare (1.45 percent) come out too, plus any state and local income taxes.4National Finance Center. Separation Incentives Federal withholding alone takes roughly $7,400 off a $25,000 payment before state taxes touch it, so you’re realistically looking at $17,000 to $18,000 in hand. If the buyout is supposed to carry you between jobs, plan against the net figure.
The Five-Year Repayment Rule
This is where most buyout decisions turn. If you accept any federal employment within five years of your buyout separation date, you must repay the entire incentive amount before your first day back. It doesn’t matter which agency paid you or which agency is hiring you. Repayment is the full gross amount, not what you received after taxes.5Office of the Law Revision Counsel. 5 USC 3524 – Effect of Subsequent Employment with the Government
“Employment” is defined broadly. Personal services contracts and other direct contracts with the federal government trigger the repayment obligation, not just traditional civil service appointments. Waivers exist but are narrow. The OPM Director can waive repayment for an executive branch position only if you have unique abilities and are the only qualified applicant available, or in a life-or-property emergency where your skills are directly relevant and the assignment is temporary. Legislative and judicial branch entities administer their own waivers on similar terms.5Office of the Law Revision Counsel. 5 USC 3524 – Effect of Subsequent Employment with the Government In practice, almost nobody gets one.
Run the math honestly. If there’s any realistic chance you return to federal work within five years, you’d be paying back $25,000 gross after receiving only about $17,000 net. Contract work with the government counts too.
What Happens to Your Benefits
Whether you resign or retire changes almost everything about what comes after separation.
Health Insurance
If you resign without retiring, you can elect Temporary Continuation of Coverage under FEHB for up to 18 months.6Office of the Law Revision Counsel. 5 USC 8905a – Temporary Continuation of Coverage You pay the full premium (both the employee and the government share) plus a 2 percent administrative fee. Expect the biweekly cost to double or triple what you saw on your pay stub. After 18 months you’re on the marketplace or a new employer’s plan.
Life Insurance
FEGLI coverage ends the day you resign. You get 31 days to convert to an individual policy without a medical exam, and the converted policy will almost certainly cost more than your current premiums.7General Services Administration. Federal Employees Group Life Insurance Program Information
Thrift Savings Plan
Your TSP account stays put. Leave it invested, take a partial withdrawal (minimum $1,000), start installment payments, buy a life annuity, or roll it into an IRA or another eligible retirement account.8Thrift Savings Plan. Withdrawals in Retirement Under 59½ and taking a distribution? The standard 10 percent early withdrawal penalty applies unless you qualify for an exception.
Annual Leave
Unused annual leave converts to a lump-sum payment equal to the salary you would have earned had you stayed on the rolls through that leave period.9Office of the Law Revision Counsel. 5 US Code 5551 – Lump-Sum Payment for Accumulated and Accrued Annual Leave This is separate from the buyout, with its own tax withholding. A large leave balance can rival the buyout itself.
Pairing the Buyout with Early Retirement
Agencies often run a buyout alongside Voluntary Early Retirement Authority, and taking both usually beats taking either alone. VERA lets you retire earlier than normal if you’re at least age 50 with 20 years of creditable service, or any age with at least 25 years.10U.S. Office of Personnel Management. Voluntary Early Retirement Authority Standard FERS reduces annuities for early retirement; VERA doesn’t.
The benefits picture is what really separates a VERA retirement from a plain resignation with a buyout. Retire under VERA and you keep FEHB coverage for life, so long as you’ve been enrolled for the last five years of service or since you first became eligible. OPM also pre-approves waivers of the five-year rule for employees covered since the start of the agency’s VERA or VSIP authority who retire during that period.10U.S. Office of Personnel Management. Voluntary Early Retirement Authority Resign without retiring and FEHB ends after 18 months of TCC.
Applying Once a Buyout Is Offered
When your agency announces a buyout window, eligible employees usually get a few weeks to apply. Start with your most recent Standard Form 50 and confirm your grade, step, and service computation date match agency records. Mismatched service dates are the most common cause of processing delays.
You’ll file a Standard Form 52 requesting the personnel action, coding your separation as a resignation or retirement to accept a VSIP, with an effective date inside the agency’s window. Most agencies also require a separate buyout agreement that spells out the legal terms, including the five-year repayment obligation. Human resources reviews the package to confirm your position is covered and the statutory requirements are met. If approved, you receive a formal notification with the payment amount and your mandatory separation date. Once you accept, the date is locked. Payroll typically processes the lump sum within a few weeks of your last day on the rolls.