False Rumors of New Retiree Tax

February 14, 2011 | Terry Howell

Lately I have heard some rumblings about a new law will increase taxes on military retirement pay starting in March. Well the stories are half true. It is true that the government will be withholding more and that it is going to affect your March check. However, it is not the result of a “new” law and your federal income tax rate is NOT increasing.

The truth is that the increased withholding is the result of the expiration of the “Making Work Pay” credit, which was part of the 2009 Stimulus Package.

So let me make this perfectly clear. There is NO “new” tax on military retirement. The increase is the result of the new IRS tax withholding tables which changed for 2011, meaning about 75 percent of the population is subject to an increase in the amount of federal tax being withheld from their monthly pay – not just retirees.  Again – the tax rates did not change; only the withholding tax table changed.

FYI – DFAS doesn’t make this stuff up, they use the IRS tax withholding tables to determine the amount to be withheld. For more information concerning the 2011 federal tax withholding tables go to http://www.irs.gov/. See IRS Notice 1036, TABLE 4-MONTHLY Payroll Period.

Here’s a tip – If you want to lower your federal tax withholding, you can do so by visiting the Defense Accounting and Finance Service myPay web-portal. You can use the federal tax calculator on the OPM website help you figure out the amount of federal tax you should have withheld.

As the OPM website points out – Changing the amount of your withholding will not reduce your tax liability at the end of the tax year. You may also want to consider contacting your tax advisor.

Be sure to visit the Military.com Tax Center to learn more about filing your 2010 taxes.

About Terry Howell

Before becoming the Managing Editor for Military.com, Terry served 20 years in the U.S. Coast Guard as an Aviation Electrician’s Mate and aircrewman. In his final role in the Coast Guard, Terry served as a Career Development Advisor, where he provided career, finance, education, and benefits counseling to servicemembers and their families. Since retiring from the Coast Guard, Terry has authored the book, The Military Advantage, managed the content for TurboTap, the DoD's online transition program and VAforVets, the VA's transition assistance website. Terry earned both his Bachelor's and MBA at Corban University using Military Tuition Assistance and his GI Bill benefits to help cover the cost.

Comments

  1. I’m actually glad this is done, it didn’t bother me as it was, I keep my withholding at 0 as it is.

    This will just make it less I need to send in on estimated tax now, like I did to cover what I was going to be taxed on anyway.

  2. Wait, I'll hold my breath.

  3. oldschoolchief says:

    Vector Check! I"m under the old school program that when I signed on the dotted line 30 yrs ago the promise was to provide health care for life. I kept my promise by defending this country…so sad that our country did not keep theirs.

  4. Making work pay credit is $400.00 per year for individuals. $800.00 per year for married couples. You have to have a certain amount of earned income to qualify for the full amount. To be specific the credit is applied for on a Schedule M. It asks the following question: Do you (and your spouse if filing jointly) have wages of more than $6,451 ($12,903 if married filing jointly)? If yes you get the full credit. If no you multiply your earned income by 6.2%, to figure your credit.

  5. Folks, two years ago President Obama reduced your income tax withholding with his making work pay tax credit. People cussed him and accused him of raising their taxes, didn't even realize they were paying less. Now those credits have expired. In my case, two years ago they took $46.00 less withholding from my retired pay. Since the credit has now expired they are now withholding the $46.00 once again. It's really pretty simple.

  6. You guys need to calm down and learn how the system works. It's really not rocket science. If they are withholding $50 dollars more per month, this is how it works. Fifty times 12 (months) equals $600.00. Next year your income tax refund will be $600 larger. Don't want a bigger tax refund? Go to My Pay and reduce the withholding by $50.00 per month.

  7. I just realized something. This year (2010 tax year) you are getting a tax credit. Next year (2011 tax year) you won't be getting a credit. So you probably don't want to reduce your withholding after all. See my earlier posts if you don't know what I'm saying.

  8. Michael Reis says:

    I don't catre what they call it, less maney in my pocket is a tax. Michael

  9. Except Obummer put a 2 year freeze on federal pay last year.

  10. Supplemental? I shouldn't have to pay what I do now for Tricare. It was suppose to be free when I finished my 20. I held up my end! At any rate, What I do have works fine without paying some crooked insurance company for more letdowns.

  11. Oh great! You are just the type of idiot that makes us all look bad. It is bad enough the Dems want to take everyones guns away. Now your dumb ass says crap like this!

  12. Gunny
    I understand exactly what you are saying about 2009 and 2010. However, If someone had an additional job that required a w2 in 2009 and 2010, a return was/is going to be reduced. i.e for 2008 I had a return of $699.00. 2009 a return of $427.00 with no changes. my tax guy tells me it's going to be the same for the 2010 filing.
    21 yrs USAF

  13. Is it 2012 yet? Why mess with our pay at all! What's "extra" income for some is the "only" income for others….not everyone has the opportunity or ability to retire then get a cushy civilian job doing the same thing 3 days after retirement. It's pretty disappointing what our 'leadership' has done, and continues to do to the future of our country, let alone veterans….

  14. My guess is that most of upset about the increase also voted for GOP/Tea Party politicians elected to oppose the spending in the Stimulus Plan that allowed that tax break. Learn a lesson, look for and learn the facts, not listen to the "talking heads." A large percentage of the Obama Adminstration stimulus package involved cutting or lowering taxes, now you will be loosing those.

  15. Mike Vance says:

    It doesn't matter what the name of it is or how it's justified another $32 a month is coming out of my retired pay

  16. Congress and the Senate are thieves, They vote themselves pay raises,spend untold millions running for office and steal what they can.No wonder why NO ONE believes in government.We who served our adult lives,did not serve to fill our bank accounts,we just want what we have earned,Politicians are liars,and the nation is sick of getting screwed.Most retirees SURVIVE on their retirement…ENOUGH is ENOUGH!

  17. They said we had tax cuts what a lie. All they did is delay when we would pay the taxes. Not enough was taken out last year and I would bet there is a higher percentage of people owing taxes this year. Hopefuly they are taking enough out this year so maybe we won't get a bad surprise next tax season. and they haven't given a cost of living raise in 2 years. Sure do feel appreciated, NOT!!!

  18. Wrong this is unexceptable. They didn't help us out. They delayed when we would be payin the taxes. Because they didn't take enough out in 2010 I owe taxes this year. Tell me how someone who was unemployeed due to lay offs for 8 months ends up owing taxes. The ecconomy is growing who told you that? It wasn't extra money we ended up paying it at the end of the year.

  19. Poor 'ol Marine says:

    We owed uncle sugar $1511.00 this year, my SS her SS my retirement her retirement. We make do, but an extra $50+ will only help pay down next years bill to the IRS, of course by then we will see another tax increase and ofcourse No COLA. Blued, Screwed and Tatooed!

  20. CAN'T SURVIVE says:

    Everyone here who has commented on these issues are so true. Why are the retirees being made to suffer after all we have been through. The government really needs to open their eyes and see what is going on. Pay is going down but everything else is going up. They just want us retirees to die out which would put more money in their pockets. Its a shame we cannot vote to cut their pay or freeze their pay, after serving over 25 years all I ask is LEAVE MY PENSION ALONE.

    • Your Friend says:

      GO GET A JOB!

      • Retired02 says:

        You are an idiot, and obviously know nothing about what we went through during our 20-30+ careers. You are burned, churned, used up and spit out. Physically and mentally exhausted. That is those of us that did the work of the other 8 that were on smoke breaks.

    • They want you to eat more dog food and die soon

  21. The government giveth and TAKETH AWAY AND TAKETH AWAY AND TAKETH AWAY !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  22. I didn't retire from the military, but I worked for McDonnell Douglas A/C (now Boeing Co.). I didn't see the raise until Feb. 1 in my pension, but it is an increase of 419% over what it was in Jan. 2011. I'm thinking maybe it was suppose to be effective in Jan., so that amount may be for 2 months. Like you say, it is still a small amount, but on a small pension and SS, it is a huge difference in pay. Isn't it just like the Obama administration to tell us we will have no increase, then change the tax withholding schedule and not mention it? No COLA for 2 years, yet Congress gets a $5,000 increase in pay every year.

  23. How do you explain the fact that I paid NO federal taxes when Bush was in office. I got a $7.75 hike in April of 2010 and another $32.48 in Feb. 2011. "If you make less than $250,000, you will not see any increase. Not one dime." Remember that?

  24. I would sure like to know of all the folks complaining about this issue how many are Democrats and voted for our present POTUS and our non-representative congress (Reid, Pelosi, Boxer, Kerry just to name a few) – they all make me sick. So are you part of the problem or did you vote for REAL change we all can believe in – WAKE UP AMERICAN MILITARY RETIREES – want change then get rid of our non-representative congress!!!

  25. or give it to unemployed illegals

  26. I'm not buying the "tax credit" garbage. That was an option that I apparently didn't qualify for on '09 or '10 taxes. We are paying for the billions that was handed to the big corporations and wasteful spending of this welfare administration to anyone but those who really needed it (retired military and social security).

    I'm no longer giving free loans to the government as I went straight to the My Pay and adjusted the rate myself. That money will be in a new account earning what little interest the Big Brother banks are offering. No refund next year? I don't give a !@#$. No free lunch for feds on my dime. Better do it while you still can as I'm sure that option will go away soon enough.

    As for the "modest" raise on Tricare. I had to laugh, it only applies to people 65 and below. Sure, that's when you go to Tricare for Life…a very poor medicare supplement.

  27. The tax rate does not go up, but they withhold more. This sounds like a FORCED loan of my money to the US government. They get to use my mony, without interest. Is this not illeagle??

  28. 170%?? WOW!! My withholding increased by $32. Translating to a 2% increase totaling 11% of my gross. Our COLA is based on the CPI. Since that has not moved in two years, then we do not get the COLA. I'm betting WE WILLl see a COLA in 2012 as the inflation numbers are starting to move upward. I hate that food and energy are not computed into that CPI. FYI, The House HAS NOT voted a pay raise for the past 2 years. Out of sympathy for the sturggles of the common worker.

  29. well said. My husband and I have talked about this. People in congress need to stop giving them selfs pay raises, and take a 10% pay cut, that would help the defiset. Have a great day

  30. the extra money we received was offset by no cola for the last two years.

  31. Retired AF SRNCO says:

    I volunteered to serve my country for 21 years and am now a retired (enlisted) disabled veteran. The military taught me valuable work and life skills and I took advantage of the educational opportunities and earned a college education. My retirement benefits provide me with (1) good retirement pay (check out the civilian retirement plans) to supplement my civilian income and (2) offers me affordable health insurance for my family (check out the civilian health insurance plans). To top it all off, the VA has done a fantastic job in meeting my disability needs. Maybe I'm lucky in that I feel that all has worked out well for me and my family. So my opinion is …what's to complain about. The entire economy is suffering right now and I am not going to ask "what about me?"

  32. I also cant understand what the hell our leaders are thinking, anthing for a vote legal or illegal they dont care and will do all they can to allow illegals the rights to our $$$$ just for their votes.

  33. As a retiree, I completely agree w/your analysis of GIVING to illegals and LAZY people. Enough is enough. Pay the retirees what you pay the FREE LOADERS. I work two jobs to make ends meet, have never had a GIVE ME, unlike those mentioned.

  34. That's what I'm saying,,peace pipe, crack pipe same thing. We are recieving less money and cost of living is rising!!!!

  35. Most of what everyone is saying is true. I have writen to my fed congresscritters. They hand out "oh how we care and time they are tought, we wont forget you…" I have writen to the Secretary of defence. No answe at all. It seems the political animals want to blame the pentagon who wont answer but only do as the plotico's tell them they have to. SO my question is WHAT CAN WE VETS DO? Is there really anything to make any difference? My check gets smaller my taxes (fed and state ) Get bigger, Health and dental cost more, got a kid in college, (who I have to take care of) and when ya need help you get platitudes and additudes… NOW WHAT? And what if Johnnie T is right and the stop paying us? Not so far fetched any more.

  36. I just got my second notice from DFAS this year. The first told me my VGLI was going up by $82.00. This one says my FITW is going to increase by $32.20 a month. That's $1370.40 a year that I won't get, and it's $70 MORE than a whole month's net retirement pay. Being a US citizen and a military retiree has begun to seem like riding in an Old West stagecoach that's getting robbed, a bumpy ride followed by a holdup.

    • So far all I have seen is a lot of complaining and not a whole lot of thinking. Your VGLI is an option you elected. If you can't afford to pay for the "optional" insurance policy you elected, cancel it! The increase that everyone ACROSS THE BOARD (yes, every tax-paying citizen in this country) has noticed in their paycheck is due to increased income tax withholdings due to exactly what the author (Terry Howell) indicated in the article. The reason I said not a whole lot of thinking is going on is because every person griping about this increase can easily solve this issue by doing the following: Log in to your MyPay account and increase the number of exemptions claimed so more money is included in your take-home pay. Increasing your exemptions reduces the amount of tax withheld from your check. Yes people, it's that simple!!

      • You might like urine on your birthday cake, but I'd like less on mine. I don't want to drop the insurance coverage I've had for more than 15 years, and I have no idea why you find this stupid ACROSS THE BOARD increase acceptable (because it's ACROSS THE BOARD? Mass executions are like that). I used the withholding calculation tool on the official IRS website and found that I might reduce my 2011 tax refund to $25 which doesn't sound like much of a practical plan considering my current situation.

  37. So far all I have seen is a lot of complaining and not a whole lot of thinking. Your VGLI is an option you elected. If you can't afford to pay for the "optional" insurance policy you elected, cancel it! The increase that everyone ACROSS THE BOARD (yes, every tax-paying citizen in this country) has noticed in their paycheck is due to increased income tax withholdings due to exactly what the author (Terry Howell) indicated in the article. The reason I said not a whole lot of thinking is going on is because every person griping about this increase can easily solve this issue by doing the following: Log in to your MyPay account and increase the number of exemptions claimed so more money is included in your take-home pay. Increasing your exemptions reduces the amount of tax withheld from your check. Yes people, it's that simple!!

  38. Your Friend says:

    You got it, you were just to dumb to know it! Go die already!

  39. Don Thomason says:

    I saw the writing on the wall and quit after 15 years rather than be stupid and go on to finish my 20 to retire. BX, Commissary were not all that much, and I got my Medical at the VA when I turned 65. Thankfully I had a family inheritance to invest with my credit union CDs.

  40. damn, double-checked to see if I'm on still on Military.com or FoxNews.com!

  41. No cola because prices didn’t go up? EVERYTHING in the stores wnt up! The liar in charge takes our our money and gives it back next year at a deflated value.

  42. Congress has not had a raise in 2 years either. They have voted to freeze in both FY10 and 11. They do not vote on pay raises for themselves. Its set as the same as Federal GS workers unless they vote to freeze or lower.

  43. Debbie Hawkins says:

    I was a bit panicked when I saw my retired statement for March. I'm divorced so my spouse gets half. I was getting 876 and it dropped to 727. I have some sbp for two of my children, Tricare Prime, VGLI and an additional amount for tax coming out also. I'm tired of paying every year. Once or twice have I gotten a refund. I, like a couple of people stated think they might stop retired pay and I don't know what they'd do with disability pay. Is it fair? Not much is fair in life. There for a while they would raise my retired pay so I'd owe more tax. I'll have to check my bank account to see the disability pay for March.

  44. My Fed withholdings have gone UP for the last 3 years! So if it went down for the “Making Work Pay” I couldn’t tell. Plus the W2’s and 1099’s should have a box marked showing the amout (if any) that went toward the “Making Work Pay” That would have made things a lot better!

  45. retired AF says:

    a gunny who can write, WOW. STUPID but what would you expect

  46. All I can say is:

    NOVEMBER 2012

    Remember the old saying that what goes around comes around, every dog has his day and good dogs have two and in 2012 I (we) get our second day!

  47. It's true! As of 1 March 2011, they cut are pay, now I have to change my W-4 so I don't have to pay taxes at the end of the year. What is the since in fighting for our country just to come home and get taken (out of our pockets) and the increase in Tri-Care. Are there people out there fighting for us? or Are we left to be put out of our misery?

  48. I require an explanation of why we are being taxed on monies paid to us from taxed dollars…

  49. TexanPatriot says:

    Just wait until the massive TRICARE PRIME increase kicks in….not pay increase, but they're certainly going to take more, aren't they?

    That's an indirect tax, my friends.

    They give you money, then take it away. Then tax you on that money anyway.

  50. TexanPatriot says:

    If you were entitled to and didn't receive it, you are supposed to file a tax return and get it back that way.

  51. TexanPatriot says:

    Your Secretary of Defense has a track record of feeling ill toward retirees. We are seen as sucking the lifeblood out of the budget. If you work you shouldn't use TRICARE PRIME, in his view. Oh, why do you even need a retirement check, just serving is good enough, right? In the bean counter view, just eliminate TRICARE, Retirement checks, and just wait until they can get Social Security….hey….if they're getting Social Security, then why do they NEED a Retirement Check? (I guarantee, there's a staffer who has developed THAT plan to spring on us. It will be the "no double dipping" plan.)

  52. TexanPatriot says:

    Cost of living is for inflation right?

    When why did active duty and civilians and members of Congress experience price inflation last year? When nobody else did?

    So, is it a special COLA index they're using for that?

    I'll be the inflation statistics will be "adjusted" down to also show ZERO for this year as well, so they can give Active Duty a fat 2% or so, and kill it for every body else, including Grandma and Grandpa.

    If you'er Active Duty, I don't begrudge you, but just remember, eventually you too WILL be a RETIREE, and treated like garbage by your government like the rest of us. Just remember it!

  53. TexanPatriot says:

    Sorry dude, it's based on IRS withholding tables. They're published and yes, sadly, accurate. And yes, for some people it was a relatively big credit. It has nothing to do with "your income level" but the actual size of the taxable portion of the pay.

  54. 2012 Reform says:

    Welcome to another bonus with this Administration. The campaign (camp-pain) slogan was "Share the wealth."
    Let the Middle-Class beatings continue.

  55. valvepop says:

    My wife is receiving a check for her former spose's 20 yr retirement from the Navy. She does not work and wouldn't have benefited from "Making Work Pay" legislation but she is losing about 29 dollars a month from her check. She can't figure it out either.

  56. As you have already figured out we have the wrong people in washington representing them selves not us, A President a bunch of Socialist Congresmen on both sides of the isle by the way they had rather give the money to Kadaffey in Libia or some other foreign country or mexicans or what ever it be than see a veteran get one red cent i am 100% Homebound disabled vet and it burns me up when Congress votes a big raise for themselves and screws us.

  57. Before they start cutting the benefits that americans are paying for let's cut out ALL aid to other , illegals and anchor babies, all useless agencies and roll back budgets of all others before obama's increases that we are borrowing money to pay for. Keep OUR money home and take care of Americans first. Obama needs to stop every other day campaign trips and long vacations out of country like michele's and party second trip to africa.

  58. Just remember who votes these people in. We need a constitutional amendment so we can have term limits on the congress and senate.
    Absolute power always corrupts absolutely.