FERS Supplement Earned Income: What Counts and What Does Not

If you retire under FERS before age 62 and draw the Special Retirement Supplement, one question decides whether you keep the whole check: what counts as FERS supplement earned income? Get the category wrong and a reduction arrives a year later, after you have already spent the money.

The short answer: FERS supplement earned income is wages from a job plus net profit from self-employment — nothing else. Pensions, annuities, TSP withdrawals, interest, dividends and veterans benefits never count. The 2026 exempt amount is $24,480, rising to $25,560 in 2027.

Key takeaways

• Only wages and net self-employment profit count, and that includes bonuses, commissions and vacation pay (SSA).
• SSA does not count pensions, annuities, investment income, interest, veterans benefits, or other government or military retirement pay (SSA).
• The annual exempt amount is $24,480 for 2026 and $25,560 for 2027 (SSA Office of the Chief Actuary).
• Above the limit, the supplement drops $1 for every $2 earned over it.

What is FERS supplement earned income?

The Special Retirement Supplement bridges the gap between retirement and age 62. Congress tied its earnings reduction to the Social Security retirement earnings test, so OPM borrows Social Security’s definition of earnings rather than writing its own.

That definition is narrow. Social Security counts “only the wages you make from your job or your net profit if you’re self-employed.” Everything else sits outside the test. The practical effect is that a retiree living on annuity and TSP money has zero FERS supplement earned income, no matter how large the deposits are.

Which payments count toward the earnings test?

Six categories count:

• Salary or hourly wages from any employer, federal or private.
• Bonuses.
• Commissions.
• Vacation pay — which is where federal retirees get caught. A lump-sum annual leave payout is vacation pay, so it is earnings, not a separation benefit.
• Net profit from self-employment, including consulting and contract work.
• Pay from a rehired-annuitant position.

A retiree who separates with 400 hours of annual leave at $55 an hour receives roughly $22,000 in a lump sum. On its own that is already close to the $24,480 line for 2026, before a single consulting invoice.

What never counts as earnings?

Social Security excludes pensions, annuities, investment income, interest, veterans benefits, and other government or military retirement benefits. For a federal retiree that means the FERS basic annuity itself, the supplement, TSP withdrawals, IRA distributions, dividends, capital gains, VA disability compensation and military retired pay all sit outside the test.

The distinction is between money you worked for this year and money you are being paid out of a plan. Both land in the same bank account; only the first one reaches the earnings test.

How does the limit work in 2026 and 2027?

Earnings above the exempt amount reduce the supplement by $1 for every $2. Someone who earns $34,480 in 2026 is $10,000 over the limit, which produces a $5,000 reduction applied against the following year’s supplement payments. The limit rises to $25,560 for 2027, so the same salary produces a smaller reduction that year.

The timing is what surprises people. OPM surveys retirees about the prior year’s earnings and applies any reduction afterward, so the bill for 2026 earnings arrives during 2027. For how that reduction is calculated and when it first applies, see our guide to the Special Retirement Supplement earnings test, and for the supplement itself, our FERS Special Retirement Supplement guide. Social Security’s booklet How Work Affects Your Benefits sets out the underlying earnings rules.

Frequently asked questions

Does my FERS annuity count as FERS supplement earned income?
No. SSA excludes pensions and annuities from the earnings test, and the basic annuity is a pension.

Does a lump-sum annual leave payment count?
Yes. SSA counts vacation pay as wages, and an annual leave payout is vacation pay.

Do TSP withdrawals count?
No. TSP withdrawals are distributions from a retirement plan, not wages or self-employment profit.

Does VA disability compensation or military retired pay count?
No. SSA excludes veterans benefits and other government or military retirement benefits.

Ready to plan your federal retirement with confidence?

Fed Pilot hosts free, no-pressure workshops that walk federal employees through these exact decisions in plain language. Seats are limited each session. Register for a free Fed Pilot workshop and bring your questions.