NEW IRS CALCULATIONS RESULT IN SLIGHTLY HIGHER WITHHOLDING TAX FOR RETIREES
BACKGROUND
In February 2009, The American Recovery and Reinvestment Act of 2009 became law. A provision of this law known as the Making Work Pay Credit allows working individuals and working families to hold on to more of their paychecks by paying less withholding tax.
However, most pensioners are not eligible for this tax credit, even though when the law went into effect, the IRS withholding tables issued to implement the tax credit applied to everyone, including pensioners. As a result, some retirees were faced with an unexpected tax liability for 2009.
FEDERAL TAX CALCULATIONS FOR 2010
In November 2009, the IRS addressed this situation by releasing new optional withholding calculations for 2010 pension payments. LACERA implemented these calculations, effective January 1, 2010. An insert announcing this change was enclosed with December 2009 retiree and survivor allowances or automatic deposit receipts (ADR).
WHAT THIS MEANS TO YOU
The IRS calculations titled Additional Withholding for Pensions for 2010 are intended to provide non-working retirees an approximate offset to the withholding reduction instituted by the Making Work Pay tax tables. Although these calculations slightly increase withholding tax on your allowance throughout 2010, they greatly reduce your chance of facing an unexpected tax liability for 2010.
HOW TO ADJUST YOUR TAX WITHHOLDING
To change the amount of federal tax withheld from your LACERA allowance, you must file a new Form W-4P tax form with LACERA:
- Visit My LACERA at lacera.com, to adjust and submit your tax withholding election online, or
- Call 1-800-786-6464 to have a W-4P/DE-4P tax form mailed to you, or
- Visit the Brochures & Forms page of lacera.com to download a W-4P/DE-4P tax form
- Mail completed form to LACERA, P.O. Box 7060, Pasadena, CA 91109-7060, or
- Fax completed form to 626-564-6155
CONSULT WITH A PROFESSIONAL ADVISOR
For guidance pertaining to your individual situation, consult with a professional advisor. LACERA does not offer tax or legal advice. We cannot make recommendations regarding your tax withholding elections.
2/4/10
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