Thanks to dawdling by last year’s lame duck Congress, millions of federal retirees and survivors took cuts ranging from about $20 to more than $50 in their most recent annuity payments.
Congress waited until too late to agree, and then vote, to extend the so-called Bush tax cuts which were due to expire this December 31, 2010. Although it did approve the extension in an 11th hour vote, it was too late for the IRS, which had to pre-program its computers based on the assumed new higher rate also in effect prior to the Bush tax cut. That is also the reason that taxpayers who itemize on their federal tax returns couldn’t file their returns last month as many often do.
So did retirees notice the dip in their January annuity checks?
“I just got my OPM notice of Annuity Adjustment. Of course the health benefits premium went up, but why is more federal tax being taken out? I thought the Bush tax cuts were extended. Or am I confusing this with something else?” Rita P.
“As a federal retiree we did not get an annuity pay increase this year again. I was anticipating the same net amount less the increase for health benefits. However, I got an annuity adjustment that starts Feb. 1 and there was a federal tax increase along with the health benefits reduction.
“I was under the impression that with the signing of the tax bill during the lame duck session of Congress there would be no federal tax increase. Do you have any idea why there was an increase in federal tax when the gross monthly amount has stayed the same from last year? I am not the only federal retiree where this has happened. Thanks for checking on this. ” Ken Painter, Frederick, MD
“I received a notice January 28th that my federal pension will be taxed $54 more dollars every month because of new tax rates. And that my health insurance would be going up too. I thought all the news media said that we would keep the Bush tax cuts and taxes wouldn’t go up. Every time I try to call OPM the lines are busy. Do you you know why the taxes went up or did they just lie?” Jean W.
“I am a federal retiree and on January 29 I got a big increase in the federal income tax witholding starting 2011. An article about the new higher taxes would be interesting for retirees.” Marc Titus, Fredericksburg, Va.
“…I just received my annuity adjustment from OPM and was I shocked. I KNEW the health benefits were going up. However, I DID NOT know that the tax rates were going up!! I thought the Bush tax cuts were extended. My taxes went up by $26 a month. Can you shed some light on why this happened?
“I guess next year. I’ll get the least expensive insurance that I can find, and also hope the INFLATION comes back so there might be a COLA.” Sandra Hobbs, Bend, Or
And so it goes…
Lots of angry, confused retirees. For good reason.
Blame it all on Congress. Not the OPM, certainly not the IRS.
In fact the IRS commissioner warned Congress last fall that unless they enacted legislation (and quickly) designed to extend the Bush tax cuts, the IRS would have to proceed on the assumption that the old (pre-Bush cuts) rates would resume as of January 1, 2011.
Bottom line is that virtually every federal retiree or their survivors saw their health premiums go up this year, did not get (for the second year in a row) a cost of living adjustment and were hit – temporarily – with higher taxes. Other than that, no big deal!!!
So what’s next? Tax expert Bob Leins discussed the situation yesterday on his For Your Benefit radio show. He expects the next checks retirees get will be based on the 2010 tax rates and that the retirees will get a refund of whatever they lost this month. For a complete explanation of the situation, you can listen to that show anytime by clicking here.
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