Commonwealth of Massachusetts | Public Employee Retirement Administration Commission
Five Middlesex Avenue, Suite 304, Somerville, MA 02145
Ph 617 666 4446 | Fax 617 628 4002 | TTY 617 591 8917 | www.mass.gov/perac
Domenic J. F. Russo, Chairman | A. Joseph DeNucci, Vice Chairman
Mary Ann Bradley | Paul V. Doane | James M. Machado | Donald R. Marquis | Robert B. McCarthy
Joseph E. Connarton, Executive Director
M E M O R A N D U M
TO: All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE: Federal Stimulus Package and New Withholding Tables Effective April 1, 2009
DATE: April 16, 2009
As you may know, the recently enacted federal stimulus package, the American Recovery and Reinvestment Act of 2009, (“ARRA 2009”) contains several provisions that impact public pension plans. One of these provisions is called the Making Work Pay Credit for working individuals, and includes a new federal withholding table that will result in an increase in many retirees’ allowances. This credit is based on the "earned income" of taxpayers. A retirement allowance is not "earned income." Thus, members whose sole income is a Chapter 32 retirement allowance will not be able to claim the Making Work Pay Credit while working retirees may be entitled to this credit. The new tables must be implemented on April 1, 2009 and will be reflected in the allowances paid at the end of April. The new tables can be viewed at http:www.irs.gov/pub/irs-pdf/p15t.pdf (IRS publication 15-T).
We urge you to immediately bring this matter to the attention of the entity that issues your members’ retirement allowance checks so the new withholding tables can be implemented in a timely manner. Because a number of your retirees may have direct deposit, and in order to attempt to reduce the number of telephone inquiries on the change in the amount of allowances, you may wish to advise all of your retirees about the change.
The Commission’s Tax Counsel, Ice Miller, has recommended that retirees be advised that there is a possibility that the new tables could result in "under-withholding," i.e. retirees might owe more tax at the end of the year. You might want to suggest that retirees consult a tax professional for advice on their circumstances, and be ready if retirees wish to file a new W-4P to change their withholding. Nothing in the stimulus package affects a retiree's ability to opt out of withholding completely, or to change the amount withheld on a W-4P. The new tables affect only monthly distributions, not withholding on refunds.
Ice Miller has suggested some recommendations for notification to retirees:
a. Advise them of the risk that there will be under-withholding, because the tables are based on the Making Work Pay Credit. Retirees who have no earned income may have under-withholding, while working retirees may not.
b. Advise members to consult a tax professional for advice about individual circumstances.
c. Be sure retirees know they can adjust withholding using a W-4P. The impact of these new provisions is very specific to each individual, so they should be urged to seek the personal advice from a tax professional before making adjustments to W-4P Forms.
In addition, the stimulus package also provides for a Social Security/Railroad Retirement Payment (not tax credit) in a one-time amount of $250 to qualifying individuals. These payments will be made by the federal government to qualifying individuals no later than June 17, 2009. Anyone who was eligible for Social Security, Railroad Retirement, veteran's payments, or SSI in the three months prior to enactment of the stimulus bill is a qualifying individual. Some of our retirees will be eligible for this payment from the federal government.
Finally, the stimulus package also provides a Federal/State Retiree Credit, a one time tax credit for state and federal retirees. The credit is $250 to qualifying individuals. This is not reflected in the new withholding tables, instead it is anticipated that eligible taxpayers will claim it on their 2009 returns (filed in 2010). If a retiree receives a Social Security/Railroad Retirement Payment (see previous paragraph) he or she will not be eligible for the Federal/State Retiree Credit.
To assist retirees who may be seeking professional advice and to more fully explain the impact of the ARRA 2009, we are attaching a copy of the letter from Ice Miller dated March 13, 2009.
If you have questions, please contact this office.
Attachment