Pay & Benefits Watch Pay & Benefits WatchPay & Benefits Watch
Key developments in the world of federal employee benefits: health, pay, and much more.

Tax Trouble

ARCHIVES
The federal income tax withholding formula can be complicated, and employees both inside and outside the government workforce this year will feel the effect of several changing tax provisions.

The Making Work Pay annual tax credit, included in the 2009 American Recovery and Reinvestment Act, expired on Dec. 31, 2010, meaning federal employees could see less money in their paychecks. The credit was equal to 6.2 percent of a taxpayer's earned income, up to $400 for single filers and $800 for married couples, though it began to phase out once individuals earned more than $75,000 annually and couples earned more than $150,000.

"Everything turns around this year," said Michael O'Toole, senior director of publications and government relations at the American Payroll Association. "Employees will see federal withholding go back up. They may be surprised to see an increase in withholding."

Some workers might have to adjust the amount withheld in every paycheck as a result. For example, married employees filing jointly could have increased their withholding last year if they weren't eligible for the credit and didn't want to be caught paying additional money at the end of the year.

"This year there's no credit, so what they're going to end up with is withholding too much and getting a refund," O'Toole said. "They can knock off extra withholding to bring it back to the middle."

Some of the increase in federal withholding could be offset by a drop in the amount of Social Security tax taken out of their paychecks, said David Snell, director of retirement benefits services for the National Active and Retired Federal Employees Association. Legislation passed in December reduced the Social Security tax rate by 2 percent, meaning employees will pay only 4.2 percent on the first $106,800 of their income. That change won't affect retirees, however.

Snell advises federal workers and annuitants to use the calculator tool on the Office of Personnel Management's website to make sure enough money is being withheld so they won't owe additional taxes at the end of the year.

According to O'Toole, another change that could affect federal workers is the end of the Advance Earned Income Tax Credit, which applied to low-wage employees with children. Those workers could get payments during the year of about 60 percent of their total eligibility. Employees still can get the credit, but they will have to file for it at the end of the year rather than receive advance payments, he said.

For retirees wondering why their Feb. 1 annuity check was different from the January payout, it's because OPM did not receive the 2011 withholding rates from the Internal Revenue Service in time to apply them to the Jan. 3 payment. The correct rates will apply to all remaining 2011 payments. According to OPM, the amount withheld from retirement checks could increase or decrease due to changes in withholding tables or annuity amounts.

 
FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Sponsored by Brocade

    Best of 2016 Federal Forum eBook

    Earlier this summer, Federal and tech industry leaders convened to talk security, machine learning, network modernization, DevOps, and much more at the 2016 Federal Forum. This eBook includes a useful summary highlighting the best content shared at the 2016 Federal Forum to help agencies modernize their network infrastructure.

    Download
  • Sponsored by CDW-G

    GBC Flash Poll Series: Merger & Acquisitions

    Download this GBC Flash Poll to learn more about federal perspectives on the impact of industry consolidation.

    Download
  • Sponsored by One Identity

    One Nation Under Guard: Securing User Identities Across State and Local Government

    In 2016, the government can expect even more sophisticated threats on the horizon, making it all the more imperative that agencies enforce proper identity and access management (IAM) practices. In order to better measure the current state of IAM at the state and local level, Government Business Council (GBC) conducted an in-depth research study of state and local employees.

    Download
  • Sponsored by Aquilent

    The Next Federal Evolution of Cloud

    This GBC report explains the evolution of cloud computing in federal government, and provides an outlook for the future of the cloud in government IT.

    Download
  • Sponsored by Aquilent

    A DevOps Roadmap for the Federal Government

    This GBC Report discusses how DevOps is steadily gaining traction among some of government's leading IT developers and agencies.

    Download
  • Sponsored by LTC Partners, administrators of the Federal Long Term Care Insurance Program

    Approaching the Brink of Federal Retirement

    Approximately 10,000 baby boomers are reaching retirement age per day, and a growing number of federal employees are preparing themselves for the next chapter of their lives. Learn how to tackle the challenges that today's workforce faces in laying the groundwork for a smooth and secure retirement.

    Download
  • Sponsored by Hewlett Packard Enterprise

    Cyber Defense 101: Arming the Next Generation of Government Employees

    Read this issue brief to learn about the sector's most potent challenges in the new cyber landscape and how government organizations are building a robust, threat-aware infrastructure

    Download
  • Sponsored by Aquilent

    GBC Issue Brief: Cultivating Digital Services in the Federal Landscape

    Read this GBC issue brief to learn more about the current state of digital services in the government, and how key players are pushing enhancements towards a user-centric approach.

    Download
  • Sponsored by CDW-G

    Joint Enterprise Licensing Agreements

    Read this eBook to learn how defense agencies can achieve savings and efficiencies with an Enterprise Software Agreement.

    Download
  • Sponsored by Cloudera

    Government Forum Content Library

    Get all the essential resources needed for effective technology strategies in the federal landscape.

    Download

When you download a report, your information may be shared with the underwriters of that document.