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Thursday, March 19, 2009

Gouge Away

Welcome to the world where up is down and black is white. We are, of course, talking about everyone's favorite three letter agency, the IRS. The new tax laws just enacted by Congress have thrown all us retirees a curveball. Pension income, such as what we receive from PERS, is taxed as ordinary income and is subject to the same withholding rules. On the other hand, the new tax rules, "Making Work Pay" or somesuch, treats pension income as ineligible for the new tax treatment. Thus, a paradox. The withholding tables that PERS uses are for ordinary income, but retirees don't work (some do, but their pension income doesn't come from active work). PERS is caught between a rock and a hard place. Because they have to treat pension income as ordinary income, the new withholding tables from the "Making Work Pay" bill includes the adjustments to credit single workers with an extra $400 and married workers with an extra $800. So, the good news is that PERS will be withholding using the new schedules as of April 1. The bad news is that at the end of the year, we'll all find out that PERS has been underwithholding because we are ineligible for the tax breaks. Having fun yet? The only temporary solution is to go online, download a new W-4P withholding form and REDUCE your withholding by one exemption. In this way, you will ensure that the PERS doesn't underwithhold. But changing one exemption will probably end up reducing your monthly benefit by more than what you need to offset the tax break you're not entitled to get. If you are thoroughly confused, thank Congress for this gift. If you understand what is going on, then give yourself a small pat on the back. If my explanation helps you, then give me a small pat on the back. Oh, me. I'm doing nothing.


3 comments:

Ryan said...

Just for chuckles I e-mailed both Senators and my Rep. to let them know how great it is that public employee retirees get to help balance the budget, again.

Ryan

Rivrdog said...

Professor, I thought that under PERS rules you didn't have to be stuck with Exemptions, that you could also designate a particular amount to be withheld. N'est ce pas?

TruthSeeker said...

Marc,

I want you to know how much I appreciate your oversight and analysis of PERS issues. As a retiree living out-of-state, your blogs and the discussion group are very important to us.
come visit some time and we will attempt to repay you for your wonderful service.