OPM TAX CHANGE

At least six inquires have come to me within the last two days, some almost

in tears and others in anger. The one thing in common was the question, “why

have my Taxes for 2011 increased?”

The reason is simple. You are lending money to the federal government each

month. The IRS has changed the withholding tables for 2011. This gives the

IRS the Legal right to deduct more money from your monthly annuity payment

each month. You are paying for the tax breaks that have been given to

others.

The solution is contact OPM by calling OPM at 1-888-767-6738, or e-mail

www.opm.gov/retire and request a change in your federal tax being withheld

each month.

However, if you use the net you might want to use the OPM on-line tax

withholding calculator to prevent under paying your tax.

The long explanation for why you have less money in these hard times is as

follows:

By: Dave Snell, Retirement Benefits Service Department

While all of the attention recently was on Congress extending the Bush era

tax cuts – which happened – a lesser known federal tax credit for employees

and retirees that was part of the 2009 Stimulus law was allowed to expire.

The “Making Work Pay” credit expired December 31, 2010, which could mean

higher federal tax withholding amounts in monthly annuities/pensions for

public and private sector retirees, including federal annuitants. The

Internal Revenue Service (IRS) issued a notice in December saying

withholding tables for 2011 would no longer be adjusted for the Making Work

Pay tax credit and there is no longer an optional additional withholding

adjustment for pensions.

The Making Work Pay credit was created with the passage of the American

Recovery and Reinvestment Act, Public Law 111-5, signed into law February

17, 2009 (also known as the Stimulus law). The credit equaled 6.2% of a

taxpayer’s earned income up to a total credit of $400 for individuals and

$800 for joint filers. Last year the IRS asked employers to use the new

withholding tables to adjust workers’ take-home pay to account for the new

credit as soon as possible emphasizing that employees did not have to fill

out a new W-4 withholding form, and that the adjustments would

automatically be made based on the 2010 withholding tables. Those

withholding tables also affected federal retirement payments. With the

expiration of the temporary credit, IRS tax withholding tables have changed

for 2011, and many retirees may see an increase in the amount of federal tax

being withheld from their monthly annuity payments as a result.

It is important to keep in mind that, like all employers, OPM uses tax

withholding tables that are provided by the IRS, and questions about changes

to those tables must be referred to the IRS, not OPM.

As a reminder, federal annuitants receiving payments from OPM can change

their tax withholding amounts for both federal and state taxes by contacting

OPM. Retirees can call OPM at 1-888-767-6738, or make changes using Service

Online at www.opm.gov/retire. We would also suggest retirees use the OPM

on-line tax withholding calculator at the same site before making a change

to their monthly tax withholding to make sure they do not under withhold

which could result in paying out of pocket additional federal tax that may

be due at the end of the year.

NARFE members who are unhappy about the expiration of the Make Work Pay tax

credit should direct their complaints to their own representative and

senators. NARFE is consulting with our coalition partners in the Leadership

Council of Aging Organizations regarding congressional action on this issue.

While retirees’ and survivors’ anger about the expiring tax provisions is

justified, NARFE members need to stay focused on the more critical and

immediate threat of the unprecedented spending cuts Congress is considering,

particularly proposals to reduce the earned retirement, pay and health

benefits of federal employees and annuitants.