In the past couple days, we’ve heard from several members questioning increases to Federal withholding on their pension payments. This all goes back to the Making Work Pay tax credit put in place in February 2009 to help stimulate the economy.

In February, the IRS published adjusted tax tables so as to immediately implement the tax credit through a decrease in withholding. Trouble is, those without earned income – including the majority of pension recipients – weren’t eligible for the tax credit. If you look back at your withholding in January and again in March or April, you’ll see that your withholding was reduced.

Now, the IRS has informed GM that the adjusted tax tables were not appropriate for use with pension payments. Recognizing that not all of you receive Electronic Funds Transfer confirmations by mail, the advice included with the September confirmation follows here verbatim:

“Note: Fidelity has implemented adjusted tax withholding tables for pension payments dated August 11, 2009 and later. These revised tables were provided by the Internal Revenue Service (IRS) as the tables published earlier in the year were deemed not appropriate for use with pension payments. You may notice a change to your Federal withholding amount. Please review your tax situation as it is important to understand how your income and deductions for the calendar year impact your tax liability. We encourage you to speak with a tax or financial advisor or visit the IRS website at www.IRS.gov.”

Pension recipients who are also Social Security recipients were generally eligible for and have already received a $250 Economic Recovery Payment. If you’d like further information on the Making Work Pay tax credit, visit the following IRS web page: http://www.irs.gov/newsroom/article/0,,id=204447,00.html.