Tax Withholding Could Increase Your Year-End Tax Liability

What's New

You may notice a change in the amount of federal tax withheld from your May 1 CalSTRS benefit check. The American Recovery and Reinvestment Act of 2009, part of the federal stimulus package, created new income tax withholding tables. As a result, the amount of income tax withheld from your benefit check may have decreased.

A decrease in your tax withholding may result in an increase in your tax liability at the end of the year. If you are eligible for one of the tax credits under the new economic recovery law, the credit will be applied to your tax liability.CalSTRS benefits do not count toward eligibility for the Making Work Pay tax credit. However, you may be eligible for the Credit for Government Retirees if you do not receive Social Security.

To determine the effect of the withholding change on your overall tax liability, contact a qualified tax adviser.

You can estimate the effect of changing your tax withholding election on your net pay using the tax withholding comparison calculator on myCalSTRS at If you do not wish to have your withholding reduced, you can change your withholding preference on myCalSTRS or by submitting a new Income Tax Withholding Preference Certificate.

Provisions of the new federal law include:

  • The Credit for Government Retirees, a refundable $250 tax credit for certain government retirees who are not eligible for Social Security benefits. The one-time credit is provided in lieu of any Economic Recovery Payment and is a reduction to any allowable Making Work Pay tax credit. This credit can be claimed when you file your 2009 tax return, due by April 15, 2010.
  • The Economic Recovery Payment, a one-time $250 payment for individuals currently receiving benefits from the Social Security Administration, Railroad Retirement Board and the U.S. Department of Veterans Affairs. The one-time payment will be issued in May 2009 and is a reduction to any allowable Making Work Pay tax credit. It is not subject to the Government Pension Offset or the Windfall Elimination Offset. No action is required for you to receive this payment.
  • The Making Work Pay tax credit, a refundable tax credit of up to $400 for working individuals and $800 for working families for 2009 and 2010. This credit applies only to earned income. Therefore, CalSTRS retirement benefit or annuity income is not counted toward the credit.

If you have questions about these new provisions, contact a qualified tax adviser or visit the IRS website.