The union pointed out that using the new tables established for the Making Work Pay credit will result in “widespread underwithholding on pension income, causing thousands of retirees to unexpectedly owe hundreds of dollars in taxes at the end of the year.” In Publication 15-T, the IRS said the new withholding tables also apply to pensions; however, pension payments are not subject to the Making Work Pay credit (see New Withholding Tables Apply to Pension Distributions ).
According to AFSCME, the only way pensioners can avoid underwithholding is to make a proactive election to have more withheld from their checks. “Calculating the right amount won’t be easy and will surely lead to unnecessary confusion,” the union contends in its letter.
The letter to Geithner, Senator Max S. Baucus (D-Montana), Chairman of the Senate Committee on Finance, and Representative Charles B. Rangel (D-New York), Chairman of the U.S. House Committee on Ways and Means, asks for their help in getting the IRS to change its directive to allow pension plans to use the old withholding tables.
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