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.
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