Do Members of Congress Pay Income Tax on Their Retirement?

Members of Congress pay Social Security payroll taxes along with the vast majority of American workers. Most federal lawmakers also participate in one of two federal retirement plans with the tab split between the congressmen and taxpayers. Congressmen are treated the same as other federal employees in that their annuity payments are subject to federal and sometimes state income taxes.

Background

Until 1983, members of Congress did not pay into Social Security, but were covered by the Civil Service Retirement System (CSRS). That year, the Social Security Act was amended to require that all lawmakers pay Social Security taxes regardless of when they entered Congress. However, some of the CSRS benefits overlapped with Social Security, meaning a new federal retirement system was needed. Lawmakers created the Federal Employees' Retirement System (FERS), a defined benefit plan.

New Retirement Plan

Those legislators first elected Jan. 1, 1984, or later were automatically enrolled into the new FERS unless they declined, while those already in office could choose to remain in the old Civil Service pension plan or the new FERS.

Cost Sharing

According to the Congressional Research Service (CRS), all members of Congress pay Social Security taxes equal to 6.2 percent of their taxable wage base. Those lawmakers elected before 1984 also pay 1.8 percent of their salaries into the pension plan, while those elected in 1984 or later pay 1.3 percent. The rest is picked up by taxpayers. The National Taxpayers Union (NTU) asserts that each lawmaker pays about 20 percent of the typical lifetime benefit, while taxpayers cover the remaining 80 percent.

Retirement Guidelines

A member of Congress with at least five years of service can start collecting his pension benefit at age 62. They can retire at age 50 if they have at least 20 years of service, and they can receive pension benefits at any age with at least 25 years of service. The average annual pension of retired members of Congress ranged between $35,952 and $60,972 as of 2006, according to the CRS. Benefits are also subject to cost of living adjustments. The NTU claims these benefits are two to three times more generous than a private company executive at the same salary level.

Thrift Savings Plan

Congressional lawmakers also have access to a Thrift Savings Plan, which is a defined contribution retirement plan similar to the 401(k) plans offered by private employers. Legislators participating in the FERS plan can make tax-deferred contributions to this plan and the employer provides a 5 percent match, while CSRS participants don't receive a match.

Taxes On Retirement Annuities

For tax purposes, members of Congress, regardless of whether they are beneficiaries of the FERS system or CSRS, are subject to the same taxation rules as other federal employees. Annuity payments to federal lawmakers are taxed by the IRS at a level dependent on several factors, including the amount of the monthly payment, whether the lawmaker is filing as single or married and their withholding allowances. In some cases, state income taxes must be paid as well. Congressmen can make tax-deferred contributions to their Thrift Savings Plan, which are not taxable as long as long as they withdraw funds from their account after they reach the age of 59 1/2.

References

• CRS Report for Congress; Retirement Benefits for Members of Congress
• National Taxpayers Union; Information on Congressional Retirement Benefits
• U.S. Office of Personnel Management; Federal & State Tax Information