"Making Work Pay" Tax Credit Expiration

Many LAFPP pensioners and beneficiaries may have noticed a lower net pension amount on their January 31, 2011 pension payment.  This decrease is the result of the expiration of the “Making Work Pay” tax credit on December 31, 2010. 

As part of the American Recovery and Reinvestment Act of 2009, the “Making Work Pay” tax credit was implemented in 2009 as an attempt to reduce the federal tax liability for middle class Americans.  To accommodate the credit, the federal tax tables were adjusted for tax years 2009 and 2010.  This meant that in 2009 and 2010, many LAFPP pensioners and beneficiaries saw a higher net pension amount due to a decrease in the amount of federal tax withheld.  Now with the expiration of this credit, many may see a lower net pay in 2011 because of higher federal tax withholding amounts. 

For more information on the “Making Work Pay” tax credit, and changes to the federal tax tables, please visit the IRS Web site.  As a reminder, LAFPP pensioners and beneficiaries can change their tax withholding amounts for both federal and California State taxes by reviewing How To:  Change Your Monthly Income Tax Withholding for Your Pension Payments.  However, a professional tax advisor should be consulted before making changes to monthly tax withholdings to avoid possible tax penalties due to under-withholding.