Here is what I received from a friend that is retired from the Postal Service and also prepares taxes for a lot of people I know! I sent it to numerous members of MOC that I knew were Fed retirees but here it is for all now that the subject has been brought up!
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> 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 was allowed to expire.
> The Making Work Pay credit expired December 31, 2010, which could mean higher federal tax withholding amounts in monthly annuities for federal retirees.
> The 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.
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> The Making Work Pay credit was created with the passage of the American Recovery and Reinvestment Act, PL 111-5 signed into law February 17, 2009. 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 and they emphasized that employees did not have to fill out a new W-4 withholding form; that the adjustments would be automatically 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.
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> 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.
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> 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.
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