Originally Posted: Wednesday, June 10, 2009

Tax credit could result in under-withholding for retirees

IRS Web site provides calculator, information on submitting new W-4 form

In March 2009, the Internal Revenue Service (IRS) released new tax withholding tables designed to accommodate the Making Work Pay tax credit passed under the American Recovery and Reinvestment Act of 2009. Although the new withholding tables resulted in a net increase in the benefit checks of OP&F retirees, it also meant a possible under-withholding for those who do not qualify for the credit. An under-withholding would result in either a smaller tax refund or a tax liability when filing 2009 tax returns.

Retirees not qualifying for the credit include those who rely on pension benefits as their only source of income. Implementation of the new IRS tables was mandatory and OP&F implemented the change for the April benefit checks.

Since that time OP&F has received updated information concerning the change in tax withholding amounts. After several entities (including OP&F) raised concerns that the new IRS tables would create under-withholding for many retirees for the 2009 tax year, the IRS issued a notice on May 14 recognizing the issue.

While the new tax withholding tables will continue to be used, OP&F encourages retired members to examine their individual circumstances. If their conditions result in an under-withholding situation, retirees may want to consider a change in their withholding amount by submitting a new IRS form W-4 to OP&F. Additional information, including a withholding calculator, is available on the IRS Web site (www.irs.gov).

In May 2009, the IRS announced an option requiring every retiree to contact OP&F in order to increase their withholding. OP&F decided not to implement the procedure and to allow its retired members to determine if they would like to change their current tax withholding. OP&F will not make adjustments to members withholding rates unless a member submits a new form W-4.

Last update: 6/10/2009