Faced with a barrage of complaints that the federal government is withholding too much income tax from the pension checks of federal retirees, the head of the government's payroll and pension system said yesterday that special supplementary payments would be made soon in hardship cases.
However, most federal retirees will have to wait at least until June before any changes can be made in the amount of tax withheld, said James W. Morrison Jr., associate director for compensation of the U.S. Office of Personnel Management.
"There's been a lot of misunderstanding and confusion" about the new withholding procedure, Morrison said. "We know some people use that check to live on for their daily expenses, and if we can legally supplement what they received April 1 , we'll do it . . . . We will look to every opportunity to make corrections. But we were worried about this program ever since we heard it was going through."
The new withholding system, which went into effect with the April pension checks, was required by the revenue-raising measured passed by Congress last fall. The law also provides for federal income tax withholding from interest earned on savings accounts and bonds.
Previously, no tax money was withheld from federal pensions unless the retired worker filled out special forms asking that it be done. Under the new law, which applies to private pension plans as well, income taxes are withheld automatically from pension checks, just as they are from wages, according to a formula based on income.
However, pensioners can ask to be exempted from withholding--and continue to pay taxes themselves each quarter--or they can request that the amount withheld be adjusted, depending on their family size or other income.
Each month, OPM sends pension checks to about 1.8 million federal retirees and their survivors. About 60,000 of them are in the Washington area.
Morrison said the agency has received so many complaints and inquiries since April 1 that it has added extra phone lines to deal with them. In most cases, he said, no corrections can be made until the checks that are due June 1, because information for the May pension checks has already been entered on computer tapes.
However, if there are cases of "absolute hardship," Morrison said, "we'll do everything we can legitimately do to make an adjustment quickly."
Under the law, he said, normally no tax money should be withheld from pensioners getting up to $5,400 a year or $450 a month, because those earning less than that owe no taxes. However, Morrison said some people in this low-income category may have had tax withheld because they were confused and incorrectly filled out the forms sent last winter explaining the new withholding system.
In other cases, he said, many pensioners may have too much withheld because they put down a dollar amount, unaware that that amount would be added to the amount to be deducted based on the number of claimed exemptions. Correcting this problem, he said, will require filling out a new form and several months of processing time.
Yesterday several pensioners told reporters that money was erroneously withheld from their checks even though they recently retired and are still getting back funds they contributed to the pension system, which are not taxable.
"I'm very upset. It's unnerving," said Anita F. Allen, a retired administrator at the U.S. Department of Education and former member of the D.C. School Board, who said she had $507.29 withheld. I didn't make a mistake filling out any form. They just didn't keep their commitment."