Expert's View

There’s been a lot of confusion among federal retirees who saw an increase in the federal taxes taken out of their annuity. Typical of the e-mails I received is this one:

ADVERTISEMENT

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. Can you provide me with any information for the reason for this increase?

Yes I can. Here’s the explanation from OPM, quoted verbatim.

* The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act was passed by the United States Congress on 12/16/10 and signed into law on 12/17/10. As a result, the IRS published the tax withholding tables later than usual for 2011.

* The Making Work Pay tax credit expired 12/31/2010. As a result, many retirees may see an increase in the amount of federal tax being withheld from their monthly annuity payments. The tax withholding tables published by the IRS were adjusted to provide for the correct withholding amounts without this credit.

* OPM applied the tax tables as quickly as possible but there was not enough time to apply these tables to the 1/3/2011 annuity payments.

* The withholding changes affect the 2/1/2011 and subsequent annuity payments.

* OPM has no control over the tax withholding tables; we used the tables provided by the IRS, which are set in law by the United States Congress.

* Annuitants can instruct OPM to lower their tax withholding, but the annuitants are ultimately responsible to ensure their tax burden is met.

* OPM does have an online calculator which annuitants can use to estimate the amount of Federal tax withholding and they can make these changes by using their OPM-provided password at www.servicesonline.opm.gov.

* Annuitants may instruct OPM to change their tax withholding by calling the OPM Retirement Information Office at 1-888-767-6738.

* For information regarding Federal income tax, annuitants can visit the IRS website at www.irs.gov or call the IRS at 1-800-829-1040.

And there you have it. You can blame Congress. Or you can blame the President. But this is one that you can’t blame on OPM.