"Special Credit for Certain Government Retirees"

[AJsTax]

The Special Credit for Certain Government Retirees will be a credit available on the 2009 tax return. The information on IRS.Gov and other sites state the this credit will be reduced by any amounts received as Economic Recovery Payments to Social Security recipients, etc.
I can not find any definition of what all pensions will be considered "Certain Government Retirees." Is it all pensions paid for those not eligible for Social Security withholding while working or is it just Federal pensions? I have searched nearly every place I have access to.
I have many clients that receive state pensions that are exempt from SS withholding and payments on that job. PERS, SERS, STRS, etc.
Anyone know?

[solomon]

See Section 2202 of PL 111-5.

[AJsTax]

That reads:

(Sec. 2202) Allows an income tax credit under the Internal Revenue Code for the first taxable year beginning in 2009 of $250 ($500 in the case of a joint return where both spouses are eligible individuals) for any amount received as a pension or annuity for service performed in the employ of the federal or a state government or instrumentality which is not considered employment for purposes of the Federal Insurance Contributions Act (FICA). Excludes from eligibility for this tax credit anyone otherwise qualified who receives the one-time payment of $500 under this subtitle.

So what I get from this is, as in the case of a very close relative of mine, a person receiving a state retirement that was exempt from FICA, in this case Ohio PERS, and is also eligible for and receiving Social Security benefits from other employment and did receive the $250 payment will have the Government Retiree credit reduced by the Economic Recovery Payment for a net of $0 credit allowed. The withholding on the pension was reduced so less is being paid in and they already received the $250 so if they are usually close or have to pay a little , they will have to pay more this year???
The government giveth and the government taketh it all right back!!!

[ChEAr$]

Clarification

(Sec. 2202) Allows an income tax credit under the Internal Revenue Code for the first taxable year beginning in 2009 of $250 ($500 in the case of a joint return where both spouses are eligible individuals) for any amount received as a pension or annuity for service performed in the employ of the federal or a state government or instrumentality which is not considered employment for purposes of the Federal Insurance Contributions Act (FICA). Excludes from eligibility for this tax credit anyone otherwise qualified who receives the one-time payment of $500 under this subtitle.

So what I get from this is, as in the case of a very close relative of mine, a person receiving a state retirement that was exempt from FICA, in this case Ohio PERS, and is also eligible for and receiving Social Security benefits from other employment and did receive the $250 payment will have the Government Retiree credit reduced by the Economic Recovery Payment for a net of $0 credit allowed. The withholding on the pension was reduced so less is being paid in and they already received the $250 so if they are usually close or have to pay a little , they will have to pay more this year???
The government giveth and the government taketh it all right back!!!

Nobody gets any one time payment of $500. The max is $250 and is paid personally,
unlike the max of $1,200 paid in one check to a couple filing jointly. IOW, I get the 250
and my wife gets her own 250 from SSA.

The reduction in withholding on pension income was illconceived. For one couple client,
his army retirement withholding will be down $400 and both of their civil service withholdings will be down a total of $800 (or thereabouts). Sure, they each will get their
separate $250 payment from SSA, but I've already advised them to up their quarterly
estimates starting June 15th by an extra $400 per quarter.

[solomon]

The government doesn't take back the original 250, it simply prevents double dipping. If there were a reduction of withholding on a pension that creates more of a tax liability in 2009, that will be unfortunate.

[AJsTax]

Nobody gets any one time payment of $500. The max is $250 and is paid personally,
unlike the max of $1,200 paid in one check to a couple filing jointly. IOW, I get the 250
and my wife gets her own 250 from SSA.

The reduction in withholding on pension income was illconceived. For one couple client,
his army retirement withholding will be down $400 and both of their civil service withholdings will be down a total of $800 (or thereabouts). Sure, they each will get their
separate $250 payment from SSA, but I've already advised them to up their quarterly
estimates starting June 15th by an extra $400 per quarter.

Yes, the article I pulled the quote from was apparently before the amount was adjusted and I did not catch that. The amount of the check is $250 per person.

[AJsTax]

The government doesn't take back the original 250, it simply prevents double dipping. If there were a reduction of withholding on a pension that creates more of a tax liability in 2009, that will be unfortunate.

In the case I was referring to the SSA is sending a check for $250 (single taxpayer now) and the "Act" called for a special credit of $250 on the government pension she is receiving. but since she receives the Recovery payment she is not eligible for the tax credit and the withholding was reduced for the credit so she will owe next year. I know she already received the $250 payment but she WILL have to pay it back. You try to explain that to someone that is on a fixed income. I don't even understand what the H... they were trying to do here.
The powers that be really screwed up another one!!!!

[kaimana]

I thought the withholding reduction only applied to working employees and would not be included as a reduction of withholding of retirement benefits and this is the reason why the $250 check is being sent. It is not being included in the benefit check according to the letter I received.

[Earl]

The same withholding tables are used for both working people and those on pension so the pensioners will have less withheld from now to end of year without the benefit of getting a credit on their return.

[Jesse]

You might find the following link to an Associated Press article interesting. It discusses a wide variety of situations where the latest stimulus package will likely have many of our clients wondering if we really prepared their 2009 returns correctly.

Mike

http://www.military.com/news/article...RC=retirees.nl

This article explains it very well.

[solomon]

See Notice 1036-P

http://www.irs.gov/pub/irs-pdf/n1036p.pdf