How the Stimulus Package affects federal tax with holdings for OPERS and URSJJ retirees

The federal “Stimulus Package” (formally known as the American Recovery and Reinvestment Act of 2009) was signed into law on Feb. 17, 2009. Because of the new law, the IRS has changed the federal tax withholding tables. The new tables will only affect you if you direct OPERS or URSJJ to use tax tables to calculate your tax withholding. The new tables are in effect for retirees for April 2009 and subsequent months. The new tables may impact the amount of federal taxes you have withheld and your 2009 and 2010 tax returns. However, you are not required to use the tables.

The tax tables have changed to reflect a new tax credit and a one-time stimulus payment under the new federal law. These two new features are the “Making Work Pay Credit” and the “Economic Recovery Payment”.

Making Work Pay Credit

The Making Work Pay Credit only applies to retirees of OPERS or URSJJ who return to work after retirement. The credit is based on “earned income” for the taxable year. “Earned income” generally includes taxable compensation from employment, but does not include amounts you receive from a pension or annuity like your OPERS or URSJJ benefits. The credit is defined as the lesser of 6.2% of earned income or $400 ($800 if filing a joint return). It is a refundable credit treated as an overpayment of taxes and is received through a monthly reduction in the federal tax withholding from your paycheck. Retirees who do not return to work are not entitled to this tax credit.

Economic Recovery Payment

If you are receiving Social Security benefits, you will automatically receive a one-time $250 payment from the Social Security Administration. This should be paid no later than June 2009, and is called the Economic Recovery Payment. If you are employed and entitled to the Making Work Pay Credit, the Economic Recovery Payment will reduce the amount of your Making Work Pay Credit. As a result, you may end up owing the difference when you file your taxes.

A Note of Caution on Selecting Your Federal Withholding

The IRS has not issued separate tax withholding tables for retirees. They are the same as the tables used for employment. If your federal withholding on your employment and/or pension benefits is reduced enough by the new withholding tables, you may find that you owe taxes at the end of the year. For example:

  • If you are employed and also receiving an OPERS or URSJJ benefit, you may not have enough federal taxes withheld because the withholding on both your paycheck and retirement benefit will be reduced for the same Making Work Pay Credit; or,
  • If you are no longer employed, but the reduction in your monthly withholding during employment was significant enough, you may also owe taxes at the end of the year.

To address this issue, some retirees may want to adjust the federal amount withheld to more accurately reflect the amount of taxes they will likely owe. That can be done by completing a new Withholding Preference Certificate with OPERS or URSJJ. You can find this form on our website at or contact us to send you one.

This information is provided as a courtesy to our members. OPERS and URSJJ staff members are not tax professionals and cannot give tax advice. We encourage you to consult with a competent tax advisor or the IRS for further information.

Withholding Preference Certificate

Federal Tax Withholding Tables – Important information about federal withholding can be found on pages 5 and 19-22.

State Tax Withholding Tables – Important information about state withholding can be found on pages 8 and 16-17.

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