Many of the more than 1 million workers participating in the federal government's attractive tax-deferred Thrift Savings Plan are confused as to whether to report their 1987 thrift plan contributions as part of gross income, or to deduct them (as they would contributions to an Individual Retirement Account) from their income for tax purposes. The simple answer is that they should do neither.
Money in a thrift plan account, whether it represents contributions or earnings, isn't subject to federal taxes or to taxes levied by most states until it is withdrawn. In that sense, a Thrift Savings Plan account is similar to an IRA. But it is not treated like an IRA on federal tax forms. Unlike IRA contributions -- which are deducted from gross income when you figure your federal or state taxes -- the amount you contribute to the thrift plan via payroll deductions is not counted as part of gross income. Because contributions are deducted from your gross income before you are taxed, that results in a lower federal and state tax bite with each paycheck.
The W-2 form that you should have received from your agency should reflect only your gross salary after your thrift plan contributions for 1987. By the same token, any money the government contributed to the thrift plan also is tax-deferred and not subject to taxes until withdrawn.
Under the thrift plan, workers covered by the new Federal Employees Retirement System may contribute up to 10 percent of their salaries (with a $7,000 annual limit), and also get a matching 5 percent tax-deferred contribution from the government. Workers under the old Civil Service Retirement System may invest 5 percent of their salaries into the tax-deferred thrift plan.
So federal and postal workers don't have to pay taxes on their thrift plan contributions, or any earnings or government contributions. On the other hand, the money invested in the thrift plan cannot again be deducted from gross income as if it were an IRA.Meetings
The Veterans Administration Alumni Club will hold its March 3 luncheon at the Ballston Holiday Inn. Rufus H. Wilson, past commander of the Amvets, will be the speaker. For reservations call Eva Zebl at 893-7294 or LaPreal Smith at 966-8009.
The Friends of the Department of Labor will celebrate the department's 75th anniversary at a March 10 banquet at the Washington Hilton. Tickets are $75. For information call 371-6422.
The Society of Federal Labor Relations Professionals' annual symposium continues today at the Capital Hilton. Subjects on the agenda range from collective bargaining and the public image of federal workers to AIDS in the work place. Registration is $185 for members and $220 for nonmembers. Call Betty Ziska at 262-4213.
The American Federation of Government Employees local at the Labor Department is sponsoring a series of noontime lectures that continues March 1 and March 8, on the subject of federal pay. Place is the Frances Perkins Building. For details call Michael Urquhart at 523-6941.
Readers Digest Editor Nathan Miller Adams will speak at the March 1 luncheon of the U.S. Information Agency's Alumni Association at Fort McNair.