News Briefs: A Taxing Situation
You could owe the IRS next tax season. NEA is Working to make sure you’re prepared.
By Nina Sears
There are few things scarier than receiving an unexpected notice of unpaid taxes. Yet a new tax credit offered by the American Recovery and Reinvestment Act of 2009, better known as the stimulus package, could unintentionally cause retirees to owe next year.
As a result of the “Making Work Pay Tax Credit” for 2009 and 2010, the Internal Revenue Service revised the withholding tables to be used by employers by April 1.
Although pensions are not considered earned income under the tax credit, the IRS is still requiring former employers to use the new withholding tables. For those who receive pensions, this may result in under-withholding.
In other words, retirees from the education field could owe hundreds of dollars by the time tax season rolls around—bad news for those on a fixed income.
Even worse, little has been done to change this outcome, and it doesn’t seem the IRS plans to do so.
Well, not if NEA has anything to say about it. The Association stands by the use of old withholding tables for ineligible income under the Making Work Pay Credit and, along with other retirement groups, is lobbying Congress and the new Administration to rectify the issue.
NEA sent an official letter in March detailing the problems to Sen. Max Baucus (D-Montana) and Rep. Charles Rangel (D-N.Y.), who chair the Senate’s Finance Committee and the House’s Ways and Means Committee respectively.
NEA is also urging the IRS to utilize the old tables. Yet, until changes are made, withholding from pension checks will continue.
What can you do in the mean time? Protect yourself. Contact a financial advisor immediately to inform your state pension plan to adjust your withholding. NEA representatives say the only way to change your withholding amount is to personally instruct your pension system. It’s not automatic.
“NEA will continue to seek relief with the Administration and Congress; however, the prudent action would be to meet with your account and financial advisor prior to any legislative or Administration remedy,” says NEA federal lobbyist Al Campos.