Pay Close Attention to This.....
More on the “Economic Stimulus” Tax

A glitch in the IRS rules regarding the federal income tax break in February’s economic stimulus could leave retirees with an unexpectedly large tax bill in 2010.

Find out how to protect yourself.

Non-working military retiree with Social Security or VA disability compensation
Will get a $250 check from Social Security or the VA soon, and will end up having $400/$800 (singe/married) less withheld from their retirement checks this year, but will still owe that money when they file taxes next year.

SOLUTION: DFAS executed the new withholding on April 1, therefore, retirees in this category can ask DFAS to restore the previous, higher withholding amount (note: the reduction in withholding will not appear in checks until May 1.)

Working military retirees who DON’T receive Social Security or VA disability compensation

Will have $400/$800 less withheld from BOTH their military retired pay AND from their employer’s pay – a total of $800/$1,600 less withheld, which means they’ll have to pay $400/$800 of that back when they file their 2009 taxes next year (you can only get the tax credit once).

SOLUTION: People who don’t want that to happen can ask EITHER DFAS or their employer to restore the original higher withholding now.

Working military retirees who DO receive Social Security or VA disability compensation

Will get the $250 payment soon and will ALSO have $400/$800 less withheld from BOTH their military retired pay AND from their employer’s pay -- a total of $800/$1,600 less withheld. BUT the total tax credit they can qualify for will be $400/$800, and the $250 counts against that. That means they’ll end up having to pay back $650 (single) or $1,050 (joint filer) of that money when they file their 2009 taxes next year.

SOLUTION: If they don’t want that to happen, they should ask DFAS and/or their employer to increase their withholding an extra $100-$180/month for the rest of the year so they come out even.
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You can change your tax information by accessing your pay account at
http://mypay.dfas.mil/
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