The Tax Withholding Reduction
Mar 30 2009
Wow, this program has caused quite a state of confusion and for good reason.
The tax withholding reduction (up to $400 for individuals or up to $800 for couples) applies to “earned income”–people still earning a paycheck with an employer. They will have their payroll taxes reduced and at the end of the year receive a tax credit for the reduced amount. So you pay fewer taxes now (more pocket money) and won’t owe the tax later. Each wage earner in the family may have this reduction applied to them by their employer. However, the dual income family can apply only one tax credit at the end of the year for up to $800 per joint tax filing.
Retiree checks are not eligible for this program. However, retiree checks use the same tax withholding tables as paychecks. So our retiree checks will reflect the tax withholding decrease. That means you either increase your withholding to compensate for the withholding reduction or be ready to possibly owe more taxes when you file your 2009 income tax returns.
If you also receive Social Security and/or VA Compensation, you will receive a one-time lump sum amount of $250 in one of your monthly checks in the next few months. If you also work and receive either VA or SS checks, that means you receive the payroll tax withholding reduction AND the $250 lump-sum HOWEVER the $250 will be subtracted from your payroll tax withholding credit.
IRS site: http://www.irs.gov/newsroom/article/0,,id=204447,00.html
DFAS My Pay site for tax withholding changes: https://mypay.dfas.mil/mypay.aspx
Hope this helps.
If I’ve read this correctly, there will be a one time reduction in the withholding of 400/800. So this would work as if we received the actual cash without any being withheld?
Could you please provide the effective date for the start of reduced withholding ? I believe most folks woukld like to add to the deduction beforhe effective date comes and passes.
Could you please provide the effective date of the reduced withholding ? I believe most retirees would like to make the change to increased discretionary withholding before the reduction starts.
Confusion is the proper word. The info I received includes retired pay and SS in the calculation for who is eligible. Since I and wife still work, I increased my deduction by $100.0 where I work per month since we will likely have an AGI of over 150k for the year. But, our earned income from working will be be less than that. With the $250 from SS and the payroll deduction changes that affect my wife and I, I wonder if I have increased my deduction sufficiently since it appears the Feds are going to throw more than $800 at us in this disorganized stimulus attempt.
The first changes (reductions) to retiree withholding for SSA and MILPAY seems to have occurred in 1 April checks (how ironic). That’s when I first discovered what they had done to me. Five years of messing around with withholding to put things on an even keel and someone shifts ballast again., Ptui!
Arthur Whittum
USCG Retired
1. In an earlier e-mail you indicated the initial withholding reduction of $400/800 for retired pay would begin with the May pay period. Will the whole withholding reduction occur in one pay period or will it be spread out over several? If spread out, how many pay periods will it cover?
2. Will DFAS issue a new Retiree Account Summary (RAS)?
Is this a Ponzi Scheme or what? I am retired but the SS part will hit me and my wife.
If retiree checks are not eligible then why the heck are they being included. Just use the old withholding charts and don’t change a damn thing. Is this to simple to understand or has DOD and DFAS completely lost their minds again.
My Arizona retirement check has already changed. I had no federal or state tax withheld in April. I had to resubmit the WP-4 to reinstate the withholding. I have already gone into “MyPay” and increased witholding of both the federal and the state. I fear that the government is repeating what they did under the elder President George Bush who reduced withholding without reducing what was due. It really messes up those who attempt to keep a tight line between what we owe and what is withheld.
I elected to have a set amount withheld by DFAS every month. Why would DFAS change that number as that number has no nexis to the withholding tables?
And I have read all the foregoing comments. Is MOAA going to attempt to clarify the announcement which seems to have confused a great number of intelligent individuals?
Are we going to receive any addtional information from DFAS???
This is very confusing!!!!!!!!!!!!!!!
I am not certain that you have cleared up anything.
Where will we find this credit?
Is it a one time thing?
Is there going to be a reduction in withholding for each month?
I have looked at my RAS for April and don’t see any change.
I called DFAS Customer Support a few days ago about another issue and when I asked about this, the agent I spoke with said they had not received any instruction on what to do.
Someone needs to provide us retirees clear, plain language instructions on how we head of this fiscal disaster. Is anyone able to do that?
Sure is confusing.
The article clearly states: “Retiree checks are not eligible for this program.”
However, the Defense Finance and Accounting Service says just the opposite.
See: http://www.dfas.mil/retiredpay/taxinformation.html
It says: “This act authorized a tax credit for most workers including recipients of Retired and Annuity Pay.”
Am I misreading something?
What DFAS means to say on their web site is that military retirees who also work will get the tax reduction. Not because of their retired pay but through their job’s paycheck. We’ve mentioned the confusing choice of words and hopefully DFAS will change the text. Thank you for bringing this up.
Thank you. I was quite certain the DFAS sentence was in error, or at least misleading, as all other references to the tax credit clearly said earned income. I really wish DFAS would not be required to change the withholding. I annually adjust my withholding so that I will not be due a refund, but still not owe a penalty for insufficient withholding.
Oh well, just have to do another W4 – keeps me out of the pool hall.
I read this a slightly different way. The new tax tables MAY
only apply to Employers and therefore applies only to Employee pay.
The IRS website says: “Attention Pensioners: Pensioners do not qualify for the Making Work Pay credit, unless they receive earned income. However, the new withholding tables apply to all taxpayers, including pensioners.” maybe add Employee Pay??
I can’t believe it would be any other way, but who knows.