The American Recovery and Reinvestment Act of 2009 (Public Law 111-05), was signed into law by President Obama on February 17, 2009. The Making Work Pay provision of the Act provides a refundable credit for working individuals. This refundable credit has been made available to individuals this year through a reduction in the amount of income taxes withheld from salaries and wages each pay day, including Retired and Annuity pay. Thus, without any action on their part, recipients of Retired or Annuity pay who are working and otherwise qualify for the credit get the benefit of the credit in the form of a reduction in their Federal income tax withholding (FITW) rates. These new FITW rates were made effective just prior to April 1, 2009 for the payment of Retired or Annuity pay due on May 1, 2009. The new tax tables can be found at http://www.irs.gov/pub/irs-pdf/n1036.pdf Since DFAS has implemented the new withholding tables, most military retirees have seen the actual Federal taxes withheld from their military retired pay reduced; for single retirees, $400 for the year and for married retirees, $800 for the year.

If this issue inconveniences you, there are several solutions, the easiest of which is via the myPay account online. If you have lost, do not remember, or have not received a PIN, click on the New PIN button on the myPay home page at https://mypay.dfas.mil/mypay.aspx .

Option 1: Refer to your December 2008 Retiree Account Statement for your old FITW amount and either:

(a) Adjust your myPay account by withholding additional FITW that reflects the difference between "old" withholding and "new" withholding, or

(b) Submit a new W-4 to DFAS based on that number (retirees without a myPay account must submit a new W-4 to DFAS).

Option 2: Submit estimated tax payments on April 15th, June 15th, September 15th and January 15th (2010) with payments of $200 each time (to make up the $800 total withholding difference).

Option 3: Do nothing. If you are routinely receiving federal tax refunds of $1,000 or more, this withholding change should not result in you owing any additional federal taxes on your 2009 return. The return will simply be $400/$800 lower than it usually is (depending on marital status).

Recipients of Retired or Annuity pay who are not working and do not otherwise qualify for the Making Work Pay credit may elect to submit a new W-4 to ensure that enough Federal tax is withheld to cover their overall income tax liability. The IRS has issued Publication 919 http://www.irs.gov/pub/irs-pdf/p919.pdf to assist taxpayers in adjusting their FITW for 2009. If you wish to adjust your FITW, you must submit a new W-4. You may mail your completed W-4 to:

U.S. Military Retired Pay
P.O. Box 7130
London, KY 40742-7130

Or, you may FAX the new W-4 to 1-800-469-6559.