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Shows & Panels
Annuity Reduction: Connecting the Dots
Tuesday - 2/8/2011, 4:00am EST
Short answer: YES!
Which is why so many former federal and postal workers were upset (to put it mildly) when they noticed that their most recent payments were $20 to $50 less than they had expected. The reason: Changes in tax withholding tables which were adjusted because the lame duck Congress waited until Dec. 16th to end a temporary credit that was available last year.
The IRS last year didn't know whether the so-called Making Work Pay tax credit (due to expire Dec. 31, 2010) would be extended by Congress. Or not. Congress didn't make the "or not" call until well after the IRS had to determine which tables to use.
In Washington, where affixing blame is sometimes more important than fixing (or avoiding) a problem, there is a mini-fight to decide who, if anybody, is at fault.
Bottom line: Most annuity checks where reduced by the action (or nonaction) and if retirees want to have their checks restored to previous levels they will have to change their federal tax withholding. Doing that will increase the size of your check by the amount it was reduced this month, but it won't decrease your tax liability. To be sure what to do, check with an expert (and that does not mean me!)
Here's the official Office of Personnel Management guidance on the subject.
"...On December 16, 2010, Congress elected not to extend the "Making Work Pay" credit. The "Making Work Pay" credit, part of the 2009 Stimulus Package, expired on December 31, 2010. This could mean higher federal tax withholding amounts in monthly annuities for federal retirees. The Internal Revenue Service (IRS) issued a notice in December 2010, stating 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 annuities. The adjustment is reflected in the Notice of Annuity Adjustment received by annuitants in January 2011.
"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. 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. The tax rates did not change; only the withholding tax table changed. For more information concerning the 2011 federal tax withholding tables go to www.irs.gov. See IRS Notice 1036, TABLE 4-MONTHLY Payroll Period.
"You may change your federal tax withholding by accessing www.opm.gov/retire or calling OPM at 1-888-767-6738 from 7:30am to 8:00pm EST. There is a federal tax calculator on our website that may assist you in determining the amount of federal tax to withhold. Changing the amount of your withholding will not reduce your tax liability at the end of the tax year. You may also want to consider contacting your tax advisor."
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Nearly Useless Factoid
by Suzanne Kubota
You can thank UPI for this one - Tip: Don't rub frostbite with snow
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