Many retirees opened their most recent annuity check and were surprised to find it was less than expected. Bill Zielinski, the associate director for retirement services at the Office of Personnel Management, said his office received countless calls from concerned feds.
“For a lot of individuals, when they receive a statement that describes what the new amount of their annuity is, when they see these changes, they do call us,” said Zielinski in a recent phone interview. “They want to make sure they understand what those changes are, why those changes took place and what options they may have about those.”
Zielinski said two factors caused annuities to change – the expiration of the Make Work Pay tax credit and a consolidation of tax withholding tables. Both affected the amount of taxes withheld from benefit checks.
The IRS constructs tax withholding tables every year based on changes to the tax code. The tables tell employers how much to withhold from each individual based on their pay and other personal information. In the case of federal retirees, the tables tell OPM how much to withhold from annuitants.
The 2010 tables reflected the Making Work Pay tax credit. The credit was part of the stimulus package and equaled 6.2 percent of a taxpayer’s earned income up to $400 for individuals and $800 for joint filers. Instead of receiving a check for the credit, most workers had less withheld from their wages.
The Making Work Pay tax credit expired in December. Zielinski said the IRS readjusted the 2011 tax withholding table because the credit no longer exists, causing some beneficiaries to move into a higher group.
“There was also a change in that the tax tables moved from having eight different groupings down to six groupings so that had the effect of redistributing all of our retirees across those groupings,” Zielinski said.
Congress passed the changes so late in the year that they did not impact the first payments of 2011. Zielinski said the fact that the February checks were lower than those annuitants received in January caused confusion.
OPM included documentation with the adjusted February checks showing the old and new rates.
Zielinski said retirees also have been confused about where to find information about the rate changes.
“When it comes to information about taxation and what they should be expecting relative to their taxes, those are exactly the kinds of questions they should be going to the IRS with,” said Zielinski. “For questions relative to their benefit itself – what the amount is that’s changed or if they want to reduce the withholding that they currently have, they should be contacting us.”
OPM offers several online tools so retirees have more options than just calling the agency. Zielinski said annuitants can email OPM directly at firstname.lastname@example.org. He said individuals who know they want to change their withholding rate can log onto www.servicesonline.opm.gov and adjust the rate directly.
“While individuals are ultimately responsible for meeting their tax burdens,” said Zielinski, “It’s important for folks to have an understanding of exactly what it is that did change, why they might be seeing an increase in the withholding from their benefit, and also how they can go about either asking us questions, getting information, or making changes to their record.”
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