13th Payment on 1099R Confusing

As reported earlier, a change in the retirement pay schedule means that military retirees who have been retired for more than a year received 13 retirement payments in 2011.  Previously, payments were made on the 1st of each month or the following business day.  Effective with the October 2011 payment, payments were made on the 1st of each month or on the previous business day.  This means that the payment previously scheduled to be paid on 3 October was paid on 30 September 2011, and the payment previously scheduled to be paid on 3 January 2012 was actually paid on 30 December 2011.

Whether you like the change or not, it sounds pretty simple.  However, confusion abounds because many banks and credit unions make a habit of releasing military retirement pay earlier than the actual payday.  Therefore, customers with those banks and credit unions weren’t expecting to receive those payments on the actual paydays, but rather were expecting to receive those payments on the Friday before.  When it applies to the January payments, those customers were always receiving their January payments in December, and they received the January 2011 payment in December 2010.  If you are only looking at the dates that the payments were actually received, it seems that those customers were still only receiving 12 payments in 2011.

Yet all military retirees received a 1099R tax statement that shows that they received 13 retirement payments in 2011.  How can this be?

When the Defense Finance and Accounting Service (DFAS) sends payment information to all the banks, it includes the amount of each payment and the effective date of that payment.  Without specifying an effective date, accounting would be all crazy.  For each military retirement payment paid prior to the change, the effective date accompanying each payment was either the 1st or the business day following the first.  For the January 2011 payment, the effective date was 3 January 2011.

DFAS does not and can not control the practices and procedures of each individual bank or credit union.  Many banks or credit unions offer early release of military direct deposit as a courtesy to their customers.  However, the date that the deposits are released is not, for tax purposes, the day that the deposit was intended to be paid.  The IRS requires that income be reported on the day that it was scheduled to be paid, regardless of how the banking institutions choose to handle the deposit.  It would be physically impossible for DFAS or the IRS to know when each individual bank or credit union is choosing to release deposits to their customers.

I see how this can be confusing, and I hope that I’ve been able to un-confuse it just a little.  DFAS stated pretty much the same thing in their December Retiree Newsletter and the article can be found here:  http://www.dfas.mil/retiredmilitary/newsevents/newsletter/13paystaxes.html

For the great majority of military retirees, this will not create an additional tax burden.  The 13th payment of 2011 had taxes withheld just like the other 12 payments, and that additional withholding has been reported to the IRS on your 1099R.  Only a few people will find that this change makes a significant different in their overall tax situation.

Thanks to the commenter Dave, who pushed me to do some actual calculations.  I spent the morning making up some hypothetical retirees and figuring out how this change would impact them.    I discovered that each of my retirees would have an additional tax payment due after considering the additional income and the additional withholding.  Amounts for my made-up people ranged from $115 to $335 in additional tax payment due or less in refund.  So this is definitely creating a burden for some people.

Each of my phantom retirees was assumed to be currently withholding at the correct rates for their income.  The amounts would go up quickly if you are not withholding too little already, but the opposite is also true.  If you are currently withholding at too high a rate, you might even find that this change results in a smaller tax payment due, or a larger refund.

If you are interested in the details, you can click on the picture below to see a clear copy of my entire spreadsheet with notes and comments.

If you have more questions or comments, please feel free to add them below.

 

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
  • jim jenkins

    According to that for the years 2011 and 2012 we have 25 months since 2012 will be 12 as usual sounds like another govt bs

    • Dave

      Actually what happened was in 2011 you were paid thirteen times and 2012 only eleven times. You got paid twice in Dec 2011. You got paid on December 1 and December 30. The December 30 payment was for Jan 2012 but had to be made prior to Jan 1 since Jan 1 was on a Sunday.

      • KateKashman

        Dave, retirees were paid 13 times in 2011 and 12 times in 2012. The difference is not due to 1 January being on a Sunday, but rather due to the change to the retiree pay schedule in mid-2011. Retiree paydays changed from the “1st or the following business day ” to the “1st or the preceding business day.” As a result of this change, January 2011 retiree payments were on Monday, 3 January 2011 and January 2012 retiree payments were made on Friday, 30 December 2011. This equaled 13 payments for 2011. With the new change firmly in place, retirees received the usual 12 payments in 2012. They will continue to be paid 12 times every year in the future, unless Congress changes the retiree pay schedule again. As a note, 1 January is never a payday as it is always a federal holiday.

        Hope that helps.

  • Victoria O’Neill

    Mom is getting older and I’m trying to help her out as much as I can. I have pulled my mother’s bank statement from 1/1/11 to 1/3/12 and there is not an extra payment. The payments have all been posted to her account on the first business day of the month. The explanation given here doesn’t make one bit of sense to me. Is there somewhere to go that shows the “effective date” of each payment?

    • KateKashman

      Yes, Victoria. If your mother is a retiree, you can look on her Retiree Account Statement available on MyPay. If your mother is receiving Survivor Benefit Payments, she does not get a retiree account statement but she can still access her account information via the MyPay system. If she does not have an account with MyPay, I encourage you to help her set up an account. This not only will give her instant access to any account information, but she can also receive verification of income information, change direct deposit accounts, and do all sorts of other account management activities.

      To the best of my knowledge, Survivor Benefit Plan payments follow the same schedule as military retirement pay. Assuming that is correct, the benefits were previously paid on the first of the month or the following business day. Effective with the October 2011 payment, the benefits were paid on the first or the preceding business day. Therefore, there is a change to the date that the January payment would be made. Since January 1 is always a federal and banking holiday, payments are never made on 1 January. In the past, they would be made on the first business day of the new year. For 2011 and in the future, they will be made on the last business day of the previous year. As it worked out, this means there are 13 payments made during the 2011 calendar year.

      I can’t speak to the practices of your mother’s bank, but I am surprised to hear that they are crediting her payments on the 1st when it is a weekend or holiday.

      Hope that helps.

      • Victoria O’Neill

        Actually, Kate, I said that her bank is still posting her payment on the first “business” day of the month.

        I also just found out this morning, from another article on this site that annuity payments are not affected by the pay date change. It’s here:
        http://live-military-paycheck.sites.thewpvalet.com/2011/09/0

        • KateKashman

          Oh, I didn’t realize that you were talking about an annuity. Yes, that is an entirely different situation. This change does not affect your mother.

          She is very lucky to have you looking out for her.

  • Tom C

    The reporting of 13 payments in 2011, rather than the actual 12, made on the 1099R is irresponsible as it does not accurately reflect the payments received. Indeed, if there is not a corresponding reporting of 11 payments in the subsequent year, it would constitute fraud. The resulting additional tax collected for 2011 and held by the Treasury until the 11 month period is reported is subject to interest that is owed to the payee. Certainly that argument could be made were the shoe on the other foot.

    • Barbara

      I think the13 months is on paper only as our taxes go up over $200.00 and from now on the paper we got said that we will have 12 every year from now on- my husband has never gotton 11 payments in a yeaR

  • P J

    That is my question. In what year will we report 11 mos. of income? The month of death? You better hope you die on the first day of a month. I think it is a scam to increase revenues for 2011 by way of accounting tricks. Remember when they changed paydays from the 15th and last day of the month to the 15th and the 1st? – or when they magically changed FY dates?

  • KateKashman

    I’m having difficulty understanding the outrage. If you chose to look at is as some sort of burden to have 13 payments worth of taxes due, you certainly have to look at it as a bonus that you’re getting 13 payments worth of pay. Or you can just look at it as an accounting change and not be upset. But you can’t be fine with the 13th payment but upset about the tax ramifications. That just seems like being outraged for the sake of being outraged.

    (This totally does not apply to the very few individuals for whom this 13th payment is messing up some carefully constructed tax minimization strategy, or for whom this 13th payment is pushing them into the Alternative Minimum Tax department, or other similar oddities.)

    I will be anxious to hear how much actual effect this change has on individual tax situations.

  • guest

    I just figured our taxes for this year- the result- got the pay credited on Friday evening- didn’t need it till Tuesday- got taken for over$ 200.00 more in taxes. Now I read that they will be charging us for tricare for life- we already pay almost $2400.00 together a year in medicare. Also the medication is going up- can you ever trust the government to tell you the truth- the president is not the one to blame-

  • Sam

    It cost me $862.00 in additional taxes. I called my congressman and they said I am the only one complaining. How about calling your congressman and ask for help. By the way, you can thank rep. John Fleming, La., for submitting the amendment to HR 5136 which changed your pay dates and caused 13 months of taxation.

  • sam

    anybody out there. Have you called yet.

  • sam

    I guess no one did anything. You must like paying extra taxes. My representative got re-elected and I am still bugging him. Thanks for the help.

  • s kleinman

    anyone still alive. AARP isn’t interested in your problems. Don’f bother calling them.

  • sam

    after a year my congressman told me he couldn’t help me because I was the only one who complained. Why isn’t anyone else speaking up. We were robbed.