Beginning next April the government will automatically withhold federal income taxes from the monthly annuity checks of its 1.8 million civilian retirees unless they advise Uncle Sam they want to keep paying taxes themselves on a quarterly basis.
There are more than 70,000 retired federal employes in the Washington area. The majority of them file quarterly tax returns and make payments themselves.
Under legislation cleared earlier this year by Congress, the government is required to make automatic deductions starting in 1983 from federal civilian annuities unless recipients decline in writing.
Congress originally intended for the automatic withholding to begin in January. But the Internal Revenue Service and Office of Personnel Management have agreed to delay the start up until April. Idea is to give OPM time to formally advise retirees of the change, and give them the chance to opt out of automatic deductions.
Currently about 650,000 retirees and annuitants use the automatic deduction system, paying $105 million a month in federal taxes.
Next month the OPM will send a letter to retirees advising them of the tax law change. Retirees will be advised, OPM says, how to opt out of the system before the automatic withholding begins in April.
This is how it will work:
* Retirees who want the automatic monthly deductions will be able to specify the number of exemptions they claim and also designate extra dollar amounts they wish to have deducted for federal tax purposes.
* Retirees who wish to keep paying quarterly (and not have taxes withheld from their checks) will be able to notify OPM and the IRS in forms that will be provided.
* Retirees who do not contact OPM will automatically be put under the withholding. IRS has ruled that in such cases the tax rate will be computed as if the retiree was married and had three "withholdings."
* Persons whose gross annuity is $5,400 or less will, in most cases, be exempt from the automatic withholding procedure.
Recent retirees will not have any money withheld from their annuity checks until the amount of pension they have received equals the amount of money they contributed to the system.
Federal annuities are tax free only until retirees get back all they paid into the system. That amount equals 7 percent of their annual salary for all the years they worked. In most cases retirees get back the full amount of their contributions, and then are subject to federal tax, within about 18 months of retirement.
OPM officials stress that there is no need for panic. The word, they say, will go out in plenty of time. Retirees who do not wish to participate in automatic withholding will have time to notify the government. In other words don't call them, they will contact you.