A legislative effort is underway to modernize the financial incentives for federal employees to leave service voluntarily. As reported by FEDweek, the House Oversight and Government Reform Committee is set to consider H.R. 7256, a bill that would dramatically increase the maximum payout for Voluntary Separation Incentive Payments (VSIP), commonly known as buyouts.
For decades, the “carrot” offered to federal employees to resign or retire has been capped at $25,000—a figure set in the 1990s that has lost significant value to inflation. The new proposal seeks to replace this flat dollar amount with a more dynamic cap: up to six months of base salary, indexed to inflation.
📉 Sound Data: The “Shrinking” $25,000
The current $25,000 buyout cap is a relic of the Clinton administration. When adjusted for inflation, its purchasing power has collapsed, making it a weak tool for reshaping the workforce in 2026.
- Inflation Erosion: According to the Bureau of Labor Statistics (BLS) CPI inflation calculator, $25,000 in 1993 (when the cap was established) had the same buying power as approximately $55,000 today. The incentive has effectively lost more than 50% of its real value.
- The “Six Month” Math:
- Current Cap: $25,000 (regardless of grade).
- Proposed Cap (H.R. 7256): A GS-13, Step 5 employee earning roughly $130,000 would potentially be eligible for a $65,000 buyout (half of their annual salary). This represents a 160% increase in the incentive’s value compared to the current flat rate.
- The Tax Reality: It is critical to remember that buyouts are taxable income.
- Net Payout: A $25,000 buyout, after the mandatory ~22% federal withholding, Social Security, Medicare, and state taxes, often results in a check of only ~$16,000.
- New Scenario: A $65,000 buyout would net approximately ~$41,000 after taxes—a sum that provides a much more viable bridge for those considering a career change or early retirement.
🏛️ Why Now? Avoiding the RIF
The timing of this bill is not accidental. With the expiration of the RIF moratorium on January 30 and the looming threat of workforce reductions, agencies are looking for tools to downsize without resorting to involuntary layoffs.
- The DoD Precedent: The Department of Defense (now Department of War) previously had a temporary authority to offer $40,000 buyouts, which expired in 2021. H.R. 7256 attempts to codify a higher limit government-wide.
- Flexibility vs. Mandate: The bill allows agencies to “calibrate” their offers. This means an agency could offer the full six months for hard-to-cut positions, or stick to a lower amount for others. It is a ceiling, not a floor.
🛡️ Is the “Golden Handshake” Worth It?
A $60,000 check is tempting, but is it enough to walk away from a federal pension accrual? A buyout is only a good deal if the math behind your exit strategy is solid.
Internal Benefit Advisors helps you evaluate the offer beyond the headline number.
How We Analyze Your Buyout Offer:
- “Bridge the Gap” Analysis: We calculate if the net buyout amount is enough to cover your expenses until you can access your TSP or Social Security without penalty.
- Pension Loss Calculation: If you leave 5 years early to take a buyout, how much lifetime pension value are you sacrificing? We compare the one-time cash infusion against the permanent reduction in your annuity.
- Tax Strategy: A lump-sum buyout can push you into a higher tax bracket for the year. We help you plan your TSP withdrawals and other income sources to minimize the IRS bite.
The buyout might be getting bigger. Make sure your plan is big enough to handle the transition.
Contact Internal Benefit Advisors today for a buyout vs. retention analysis.
References
- FEDweek. “Boost in Value of Buyout Incentives under Consideration in House.” February 2, 2026.
- Bureau of Labor Statistics (BLS). CPI Inflation Calculator.
- U.S. House of Representatives. H.R. 7256 – Voluntary Separation Incentive Payment Adjustment Act.
- Internal Benefit Advisors. Retrieved from https://internalbenefitadvisors.com
