What Counts as “Earned Income” Under the 80% Rule — and What Doesn’t
Emily A. Hall ·
The 80% earnings limitation is the rule most FERS disability annuitants have heard of and fewest actually understand. The confusion rarely concerns the percentage. It concerns the far more practical question of which dollars are being measured.
The rule in one sentence
If you are under age 60, and your income from work in a calendar year reaches at least 80% of the current rate of basic pay for the position you held when you retired, you are considered restored to earning capacity and your annuity ends.
Notice what that sentence is measuring: income from work. Not net worth. Not total household income. Not every deposit into your account.
What generally counts
- Wages and salary from any employer, federal or private.
- Net earnings from self-employment — the profit from a business you actively operate, not your gross revenue.
- Contract and freelance payments for work you personally performed.
The through-line is straightforward: you traded labor for money.
What generally does not count
- VA disability compensation. It is not payment for work.
- Your FERS annuity itself.
- Investment income — dividends, interest, and capital gains.
- Rental income in ordinary passive arrangements.
- Social Security disability benefits, which follow their own separate rules and coordination with FERS.
Why the distinction changes real decisions
Consider two annuitants who both want to bring in additional money. One takes a part-time position. The other builds something that generates revenue without ongoing personal labor.
Those two paths are treated very differently by the earnings rule, even if the dollar amounts are identical. That single distinction shapes almost every meaningful decision a disability annuitant makes about working again — whether to sell hours or to sell something else, whether to take a salaried role or structure differently, whether a plan has room to grow or is approaching a ceiling.
Where it gets genuinely complicated
Self-employment is where careful thinking earns its keep. The rule looks at net earnings from self-employment, which means legitimate business expenses matter, and the structure of a business affects how income is characterized.
This is territory where the answer depends on specifics, and where the cost of assuming wrong is your entire annuity. It is worth understanding the framework before you commit to a structure — and worth involving a tax professional on the tax questions, which are genuinely separate from the OPM questions.
The advice nobody gives
Run the number before you need it. Find the current rate of basic pay for the position you held at retirement, calculate 80% of it, and write it down. That figure is your ceiling for the year, and it is a specific, knowable number rather than a source of vague anxiety.
Most annuitants have never calculated it. They either avoid working out of fear, or work without a plan and hope. Neither is necessary.
This article is general education, not tax or legal advice. Earning capacity determinations are made solely by OPM.
Keep reading
- How the 80% Earnings Ceiling Is Calculated
- Self-Employment After FERS Disability Retirement
- Selling Hours vs. Selling Products
If you would like this reviewed against your own situation, see the Post-Retirement Compliance Consultation.