2011 Tax Table Changes

We've received a lot of inquiries from retirees about recent changes to the tax law. Some of you have even asked if we're using the right tax tables. The answer is yes. We implemented the new IRS tax tables, which include a higher Federal Income Tax Withholding. Here's an explanation of the changes affecting you, and some information on what you can do if you want to change your withholding.

Expiration of Making Work Pay Tax Credit

The American Recovery and Reinvestment Act of 2009 contained The Making Work Pay tax credit. This credit temporarily boosted paychecks in 2009 and 2010 by reducing the Federal Income Tax Withholding rates and also the amount of taxes refunded at the end of the year. Although the credit was only intended to apply to wage earners, military retirees received it because federal law classifies military retired pay as a wage, not a pension. The Making Work Pay tax credit was designed to act as a special stimulus payment to help kick start the economy out of recession by putting some extra money in citizens' hands right away. It expired Dec. 31, 2010 and tax tables reverted back to previous levels.

Lower Threshold for Tax Withholding

If you did not have any Federal Income Tax withheld from your pay last year, but are now showing withholding for 2011, it is because federal tax legislation enacted in December lowered the withholding threshold for tax year 2011. This means that you now become subject to Federal Income Tax withholding at a lower income level than in previous years.

Social Security Withholding

Some of you were surprised by the increase in your withholdings because you heard news reports that workers would pay lower taxes in 2011. Those reports referred to a 2 percent reduction in American workers' Social Security withholding. Because we don't withhold social security from your military retirement payments, that change doesn't impact military retirees or annuitants.

The Effects

Overall, the new tax table affected more than 1.56 million military retirees and in most cases caused a decrease in net pay. You will see these changes reflected in your March 1 payment. These net pay decreases have already been posted on myPay and new Retiree Account Statements have been mailed out.
 
The IRS is responsible for the changes to these Federal Income Tax Withholding tables, based on laws enacted by the United States Congress. On average, Federal Income Tax withheld from retirees' pay has increased between $30 and $40 per month. Seeing less money in your pay is never fun, but there are things you can do to change the amount of pay you receive. After consulting a tax expert or the IRS, you may want to change your withholding.
 
How to Change Your Withholding
 
If you want to change your Federal Income Tax Withholding, you can do so using myPay or by completing an IRS Form W-4 and faxing or mailing it to DFAS:

Defense Finance and Accounting Service
U.S. Military Retirement Pay
P.O. Box 7130
London, KY 40742-7130
Fax: 800-469-6559

Please keep in mind that changing your withholding does not change your tax liability and you will have to pay any remaining amount owed when you file your return next April.

DFAS employees cannot advise retirees on tax withholdings. If you have questions, please contact your tax advisor or the IRS.

More Information:

IRS Notice 1036
2011 Circular E Publication 

 

Page updated April 15, 2011