Ask The Experts: Retirement

By Reg Jones

February 2011 federal income tax increase

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Q: My federal income tax withheld for February 2011 increased by $45.28. It increased from $349.80 to $395.08. I did not request this change. Is there reason for this retiree federal income increase? I understand that I am not the only retiree affected by this change.

A: According to NARFE, the National Association of Active and Retired Federal Employees, “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 Dec. 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 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 Feb. 17, 2009, (also known as the stimulus law). The credit equaled 6.2 percent 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.”

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Comments

  1. Frank Lee Doobyus Says:
    February 8th, 2011 at 8:54 pm

    Mike Causey pointed out in his February 1 article that this is a pretty simple situation:

    • Congress help up the passage of the tax provisions for 2011 to do their typical “political grandstanding.”

    • As a result, the IRS chose to publish tax tables that used the higher tax rates based on the incorrect assumption that the “Bush tax cuts” would not be extended.

    • The OPM had not choice but to use the current (albeit, incorrect) IRS tax tables in determining federal withholding rates, and thereby raised every annuitants withholding tax and thus reduced every annuitants pension.

    • Congress then extended the “Bush tax cuts” and the IRS then published “correct(ed)” tax tables for 2011.

    • OPM responded to the many annuitant queries & complaints by saying, in essence, “Because of Congress’s delays, and the IRS’s ultimately incorrect tax tables, we had no choice but to automatically increase your withholding tax and decrease your pension. But – if you want OUR mistaken withholding increase reversed, YOU have to individually contact us and ask that it be changed back.”

    One more time – Your Congress throws you under the bus!

    Here’s a thought: Since Congress, the IRS, and OPM automatically “broke” it, why don’t THEY automatically fix it by simply changing everyone’s withholding tax BACK to what it was before they screwed it up? Then – if annuitants want to increase their withholding – they can individually do so.

    Of course, this would require a modicum of “common sense” on the part of Congress and the federal bureaucracy – not to mention a scintilla of common courtesy toward federal annuitants.

    Everyone should be sure to email/write/call your elected “representatives” to let them know how much you appreciate their “consideration” and “courtesy.”

    Throw the bums out!

  2. Charles Rogers Says:
    February 11th, 2011 at 8:11 am

    As a retired veteran yesterday I received in the mail my Dept of Defense statement of pay and guess what my federal income tax withholding increased by $50 and I make considerable less than $250,000 well I have a long memory that will last until 2012.

  3. Michael Vaden Says:
    February 11th, 2011 at 1:41 pm

    I knew sooner or later they would find a way to dig into military retiree’s money. And what make it so bad, we didn’t even get a cost of living raise for 2011. So they come up with some Federal Tax law to deduct our income. Oh, let take care of our veterans… Right

  4. q byars Says:
    February 11th, 2011 at 5:24 pm

    I just received my DFAS notification in the mail on Feb. 10 stating my military retirement pay will be $550 less annually due to increase in federal tax withholding. I wrote Congressman David Price, Senators Richard Burr, Kaye Hagan and the White House to ask why they allowed this to happen. I encourage others to write their elected officials. I was proud of my 20 years of service. It’s sad that our government places less value on federal retirees these days.

  5. Roy Nefzger Says:
    February 12th, 2011 at 8:50 pm

    I seem to remember someone saying “No new taxes”. Is this the mantra for all polititians?

  6. Lee Says:
    February 13th, 2011 at 9:07 am

    Once again the politicians have screwed those that have worked hard their whole lives and played by the rules. One question: WHERE THE HELL IS AARP IN ALL OF THIS??? So much for that organization looking out for us. . . .”Words, just words.”

  7. carolyn law Says:
    February 14th, 2011 at 7:24 am

    I AM NOT ANGRY WITH THE PRESIDENT FOR MY FED. TAX WITHHOLDING INCREASE. INSTEAD, I FEEL THE REPUBLICANS KNEW THEIR HARDLINING WOULD CAUSE THE WORKING CLASS TO STILL HAVE AN INCREASE!!!! TO EXTEND THE 2001 & 2009 CUTS!!!!! AS A LOW PAID RETIREE, IT HURTS!!! TO HAVE AN ADDITIIONAL $35 REMOVED FROM TAKE HOME PAY!!!

  8. Charles James Says:
    February 22nd, 2011 at 5:31 pm

    My military retirement is $1,617/month. My federal tax in Jan/Feb was $47/month. As of 1 March that tax will go up $49/month to $96/month. As usual Obama has lied through his teeth about not one cent tax increase for anyone making less than $250k/year. I can’t wait for 2012 to come along. The saying “don’t listen to what the man says, but what he does” is truer today than ever. The man can look you in the eye and put the knife deeper in your back. Get rid of the guy in 2012.

  9. Daryl Roberts Says:
    February 23rd, 2011 at 12:58 am

    Figures. The President is not looking out for retirees. This is a shame. We serve our country so everyone can enjoy freedom and then we get back doored. No COLA for the last two years and now this. This is unacceptable. Kind of like how gas prices went very low when the President came in to the office and now look. Oil at almost another all time high.

  10. radar Says:
    February 25th, 2011 at 5:34 am

    So, this is basically an interest-free loan, funded by vets. Guess he has to pay for that high speed rail somehow, but it sure takes a bite out of my budget, and just in time for inflation.

  11. jeanne Says:
    February 26th, 2011 at 3:58 pm

    My withholding taxes went up $54 a month. They knew what they were doing. It was just a sneaky way to raise taxes.

  12. Ruth Crook Says:
    February 28th, 2011 at 5:40 pm

    NEWS FLASH! Our taxes have NOT been raised. The withholding tables are incorrect. At this point you have a choice. You can have your withholding changed or you can get a bigger refund at the end of the year. YOUR TAXES HAVE NOT BEEN RAISED.

  13. old goat Says:
    April 12th, 2011 at 7:06 am

    i agree with ruth no inrease and you can op-out of the incease withholding i believe. but its coming one way or another