Update: 2009 tax withholding for retirees

The Internal Revenue Service recently issued new tax withholding tables to reflect the Making Work Pay credit on earned income that was part of the American Recovery and Reinvestment Act. While pension benefits are not considered earned income and not subject to the Making Work Pay credit, the IRS nevertheless instructed payers of retirement benefits to use the new federal withholding tables.

This move would likely have resulted in under-withholding on pension income, which would impact retirees, many of whom are on a fixed income. MEA members were urged to contact their financial advisers to adjust their withholding to avoid owing taxes at the end of the year.

MEA has now confirmed that Michigan’s Office of Retirement Services will not implement the new tables for 2009, said Chuck Agerstrand, MEA’s retirement consultant.

“ORS is reviewing the matter to determine at a later date if they will implement the new tables in 2010,” Agerstrand said.

Retirees, if they wish, may adjust their tax withholding by going to their MiAccount online (www.michigan.gov/orsschools) or by calling 800-381-5111.

NEA is working with AFSCME, the National Council on Teacher Retirement, National Association of State Retirement Administrators, and AARP to urge the IRS to use the old federal withholding tables. In addition, NEA and its coalition allies are lobbying Congress and the White House to act to avert potential problems with the Making Work Pay credit and retiree pension recipients.

Stay tuned for further updates.

Updated: May 11, 2009 1:21 PM