Caveat: Tax Surprise For Pensioners Filing in 2010

Here's a plan-ahead tip for retirees: Expect a bump in your tax bill when you file your federal tax returns next year.  Private and public pensioners who have no employment income don't qualify for the "Making Work Pay" tax credit for working individuals and families.  But oddly, retiree tax bills for 2009 will be tied to this provision, part of the American Recovery and Reinvestment Act passed in February.

"Making Work Pay" is a refundable tax credit for tax years 2009 and 2010. Qualifying individuals are eligible for a credit of up to $400; the maximum credit for married taxpayers filing jointly is $800. The credit is 6.2 percent of earned income. A credit phaseout applies to individuals with modified adjusted gross incomes that exceed $75,000; the phaseout income level for married couples filing jointly is $150,000.

The new withholding table requirements apply to everyone, which means that less is being withheld for pensioners, not just for working taxpayers with earned incomes. The IRS deployed only one withholding schedule set, apparently finding that a dual system would be unwieldy. This is why retirees are best advised to file a new W-4 withholding form, if necessary to make sure that the right amount is being withheld from pension checks. Retirees can otherwise make an estimated tax payment to make up the difference, or increase their existing planned estimated payment to do so.