IRS Revised Withholding Tables
June 12, 2009

In February, the IRS issued revised withholding tables incorporating the Making Work Pay Tax Credit, one of the key provisions of the American Recovery and Reinvestment Act. That change resulted in more take home pay but could cause those who receive pensions to owe taxes at the end of the year. At the request of NCPERS and others, the IRS last month issued revised rules that allow pension plans to withhold more than is prescribed by the February 2009 New Wage Withholding and Advance Earned Income Credit Payment Tables (Publication T-15). The new procedure for pensions will make withholding more accurate for pension recipients.

The change will help some pensioners avoid a smaller refund next spring or even a balance due. A wide variety of factors, such as outside jobs and other earned income, can affect how much, if any, withholding is needed by people receiving a pension to satisfy their annual tax liability. The optional adjustment procedure which may be used by those paying pensions is available in Notice 1036-P, Additional Withholding for Pensions for 2009.

Pension funds are not required to use this new procedure and may continue to use only the February 2009 withholding tables. For plans that adopt the new procedure, withholding on pension payments will be automatically adjusted with no action needed by plan recipients. The IRS is also encouraging pension funds that choose to implement the new withholding adjustment procedures to contact retirees who previously submitted a Form W-4P, Withholding Certificate for Pension or Annuity Payments, requesting additional withholding after the February withholding tables were issued.

To view Notice 1036-P, please click here.