Reemployed Annuitant: Salary Offset, Waivers, and Annuity Credit

A reemployed annuitant is a federal retiree who returns to work for the federal government while still drawing a monthly annuity. The default rule is simple and often unwelcome: your new federal salary is reduced by the full amount of your annuity, so your total income equals the salary of the position rather than salary plus pension. Waivers exist, benefits keep running, and staying long enough can permanently raise your retirement income, but the offset is where every conversation about coming back starts.

How the Salary Offset Works

Federal law requires an amount equal to the annuity covering the period you actually work to be deducted from your pay.¹ A parallel statute imposes the same rule on FERS retirees.² If the position pays $100,000 and your annuity is $40,000, you receive $60,000 in salary from the agency while your full $40,000 annuity keeps arriving from the retirement fund. The two payments still come from two places; the number that changes is your paycheck.

The offset uses your gross annuity, not the net after taxes or insurance. Before you’re appointed, you have to give your employing agency the gross monthly annuity you’re currently receiving.³ Because cost-of-living adjustments since your retirement are already baked into that gross figure, the offset rises whenever your annuity does. For part-time or intermittent schedules, the agency prorates the offset each pay period based on hours actually worked against a full-time schedule.

The offset continues for the entire reemployment period unless a specific waiver applies.

When the Offset Can Be Waived

Two separate legal routes allow an agency to pay you a full salary alongside your full annuity. They work differently, and only one supports full-time work.

OPM Case-by-Case Waivers

The Office of Personnel Management can approve a waiver when an agency faces an emergency, severe recruiting difficulty, or another unusual circumstance.⁴ OPM can also delegate that authority to individual agencies dealing with emergencies or unusual situations.⁵ The request must come from the agency head and cannot be delegated below headquarters.

For a recruiting-difficulty waiver, the agency has to document how long it tried to fill the position with a non-retiree and what happened. For an emergency waiver, the agency has to describe the specific threat to life or property and how long the emergency is expected to last. Routine seasonal workload will not clear the bar.⁴

NDAA Authority (Hour-Capped)

The National Defense Authorization Act for Fiscal Year 2010 created a separate, broader authority that lets agencies temporarily reemploy retirees without the offset, subject to strict hour caps:

No more than 520 hours in the first six months
No more than 1,040 hours in the first year
No more than 1,040 hours in any 12-month period
No more than 3,120 hours over a lifetime under this authority

In practice, NDAA reemployment is part-time or intermittent. Full-time work without the offset requires the OPM route or another specific statute.

Retirement Deductions From Your New Paycheck

Whether retirement contributions come out of your pay during reemployment depends on your retirement system, and the choice carries forward.

FERS annuitants who return in a non-intermittent position have retirement deductions withheld automatically. It is not optional.³ Those deductions fund the service credit that later produces a supplemental or redetermined annuity.

CSRS annuitants get a choice. Deductions are not taken unless you elect them, and once elected with your employing agency you cannot reverse the election while you remain in continuous service there.³ Skipping deductions has a cost: reemployment service after October 1, 1982, will not count toward a supplemental annuity unless you later deposit the missed amounts into the retirement fund. A CSRS retiree who expects to stay for a year or more usually benefits from electing deductions on day one.

What You Gain by Staying Long Enough

Reemployment is one of the few ways to permanently increase a federal retirement benefit after you’ve already retired. How much depends on how long you stay.

One Year: Supplemental Annuity

Complete at least one year of actual, continuous, full-time service (or the part-time equivalent) and you qualify for a supplemental annuity when you separate. It uses the standard retirement formula applied only to your reemployment service, with the average pay drawn from your entire reemployment period.⁶ FERS employees use the FERS formula; CSRS employees use the CSRS formula and can credit unused sick leave at separation. The supplemental annuity is paid on top of your original one, so both checks continue.

If your original annuity already includes a survivor reduction, the supplemental annuity is automatically cut by 10 percent to add survivor coverage on the new amount. The survivor annuity then increases by 50 percent of the supplemental amount under FERS, or 55 percent under CSRS. You can decline this extra coverage by notifying OPM in writing when you apply.¹

Five Years: Redetermined Annuity

Work at least five continuous years of full-time service (or the part-time equivalent) and you can elect a redetermined annuity instead of the supplemental.⁷ A redetermined annuity is a full recalculation that combines all your creditable service (original plus reemployment) using your most recent salary figures, and it replaces your original annuity entirely.

To elect it, you have to deposit into the retirement fund any amounts not already covered by deductions or prior deposits during reemployment.¹ Because it uses higher, more recent pay and a longer service total, the redetermined annuity often exceeds the original annuity plus a supplemental amount. You file for it when you leave federal service for the last time.

Less Than a Year

If you stop short of a year and you were a FERS annuitant subject to the offset, you get neither a supplemental nor a redetermined annuity. The retirement deductions withheld from your pay during that period are refunded to you on written application to OPM.²

Health, Life, and TSP

If you return to a position eligible for the Federal Employees Health Benefits program, you can move your enrollment from the retirement system over to your employing agency. Your premiums then come out of your paycheck pre-tax through premium conversion instead of being deducted from your annuity.⁸ That pre-tax treatment matches what any active federal employee gets and reduces your taxable income during reemployment. Federal Employees’ Group Life Insurance works the same way, with your active salary driving coverage and premium deductions. When you separate again, your retirement system picks the enrollments back up.

The Thrift Savings Plan rules depend on how long you were gone. If your break in service was under 31 calendar days, you cannot take distributions, and any outstanding loan payments have to resume right away. Tell your new agency about existing loans so payroll deductions restart without a gap, and expect to make up any missed payments from your own funds. If your break was 31 days or longer, you were eligible to take a distribution, but the request had to be received and paid while you were still separated; once you’re back on the payroll, that window closes.⁹ You can generally resume TSP contributions through payroll deductions, and FERS employees get agency matching just like any other active FERS employee.

Appointment and Occupation Restrictions

A reemployed annuitant receives the same type of appointment anyone else would receive for the position. A permanent job produces a career or career-conditional appointment; a temporary job produces a time-limited one. There is no special retiree category.¹⁰

A few occupation-specific limits apply. Retirees who left under the special provisions for law enforcement officers or firefighters cannot be reemployed in primary law enforcement or firefighting positions after age 60. Retired air traffic controllers cannot return to controller positions after age 61, though they can take any other federal job.¹⁰

Taxes and Social Security

Medicare tax is mandatory for every federal employee rehired after March 31, 1986, regardless of retirement system.¹¹ Social Security tax depends on coverage: FERS retirees returning to FERS-covered positions continue to pay both Social Security and Medicare on their salary, while CSRS retirees generally do not pay Social Security because CSRS qualifies as a Social Security replacement plan.

If you’re collecting Social Security alongside your annuity and haven’t reached full Social Security retirement age, your federal salary counts as earned income for the Social Security earnings test, and earning above the annual threshold temporarily reduces your Social Security benefit. The earnings test disappears at full retirement age, so returning after that milestone protects your Social Security in the short term.

Both your annuity and your federal salary are subject to federal income tax. You’ll get a W-2 from your employing agency and a 1099-R for your annuity, and the combined income can push you into a higher bracket during reemployment. State treatment of federal retirement income varies widely, from full exemption to full taxation.

1
Office of the Law Revision Counsel. 5 USC 8344 – Annuities and Pay on Reemployment
2
Office of the Law Revision Counsel. 5 USC 8468 – Annuities and Pay on Reemployment
3
eCFR. 5 CFR Part 837 – Reemployment of Annuitants
4
eCFR. 5 CFR 553.201 – Requesting OPM Approval for Reemployment Without Reduction or Termination of Annuity in Individual Cases
5
U.S. Office of Personnel Management. Dual Compensation Waivers
6
eCFR. 5 CFR 837.503 – Supplemental Annuity
7
eCFR. 5 CFR 837.504 – Redetermined Annuity
8
U.S. Office of Personnel Management. I’m Returning as a Reemployed Annuitant in the Federal Government
9
The Thrift Savings Plan (TSP). Returning to the Federal Government
10
U.S. Office of Personnel Management. CSRS/FERS Handbook, Chapter 100 – Reemployed Annuitants
11
Social Security Administration. Rehired Annuitants