Tiberi, Jordan would prevent some Ohio retirees from paying unexpected taxes

Error In “Making Work Pay Tax Credit” Will Cause Unexpected Taxes For Pension Recipients

E-mail communication from U.S. Congressman Pat Tiberi
April 9, 2009

U.S. Congressman Pat Tiberi (R-OH) recently joined U.S. Congressman Jim Jordan (R-OH) in sending a letter to U.S. Treasury Secretary Timothy Geithner and Ways and Means Chairman Charlie Rangel (D-NY), with copies sent to IRS Commissioner Douglas Shulman and Ways and Means Ranking Member Dave Camp (R-MI), regarding an unintended consequence of the implementation of the new “Making Work Pay” tax credit.

This consequence came to light after IRS officials released to employers the new withholding tables to implement the credit. Withholding tables indicate the amount of payroll tax that should be withheld from an employee’s paycheck. The IRS also instructed that the new tables be used for withholding tax on pensions. Under the law however, the “Making Work Pay” tax credit does not apply to pension payments.

“This is another unintended consequence of Democrats pushing through the Stimulus so fast. No one had a chance to read it and fully understand what was in the bill,” said Congressman Tiberi. “If we don’t fix this now, millions of retirees that receive pensions will get a larger than expected bill come tax time next year and that’s just not right! Pension recipients will receive the credit, even though they are not supposed to and then come April 15th the tax man will demand they pay it back. We’ve got to fix this, that’s why Congressman Jim Jordan and I are sending a letter to Secretary Geithner, and Chairman Rangel asking them to rectify the situation as soon as possible.”

The National Education Association, the American Federation of State, County, and Municipal Employees, and other pension systems also wish to see a quick resolution to this problem.

The “Making Work Pay” tax credit was included in the 2009 Stimulus bill that was signed into law earlier this year. The text of the bill numbered more than 1,000 pages and was only made available to members for few hours before the final vote was called.