|Story & photo by Rob Schuette, Public Affairs Staff
Taxpayers who want to reduce the amounts they will owe or refunds they
will receive from their 2012 income tax returns can take steps now to
help achieve their goals.
Rita Byers (right) of the Fort
McCoy Volunteer Income Tax Center helps Alan and Peggy
Woodworth complete their 2011 income tax returns.
(Photo by Rob Schuette)
One of the best places to start is to analyze 2011 income tax
returns, said Jim Markgraf and Rita Byers of the Fort McCoy Volunteer
Income Tax Assistance center.
“We often get clients who ask us how to get closer to nearly matching
their withholdings versus their total tax obligations,” Markgraf said.
“Some people ask the question because they owe money every year. Others
ask simply because their refund is so high they would prefer to receive
more of their wages during the year.”
Federal and military personnel can manage and/or change the amount of
federal and state income tax they have withheld by going to the MyPay
https://mypay.dfas.mil/mypay.aspx, and clicking on federal or state
withholding. The amounts can be adjusted online by accessing the W-4
federal forms or state tax withholding forms and making the desired
Withholding rate estimations can be calculated using the Internal
Revenue Service (IRS) site at
Bryan Clarkin, Fort McCoy Army Community Service (ACS) financial
readiness program manager, said federal personnel can take steps
immediately to control the amount of income tax they ultimately will owe
Some of the tools available to federal employees and some contractors to
help lower their tax bills include investing in tax-deferred Thrift
Savings Plan (TSP) or 401(k) plans and several tax exempt medical or
health care accounts.
Employees who open or increase their contributions to the TSP or their
401(k) can reduce the amount of taxable income — “thereby decreasing the
amount of taxes you might owe on your earned income, while also building
up your retirement account,” Clarkin said.
“Retirement plans like TSP, 401(k) and Individual Retirement Accounts
(IRAs) also have catch-up provisions where if you’re older than 50 you
can contribute additional amounts more than the maximums established for
For example, federal employees younger than age 50 can contribute up to
$17,000 a year into a TSP account in 2012. Clarkin said those older than
50 can contribute an additional $5,500 for 2012, making a total of up to
$22,500 exempt from federal and/or state taxes. Participants must pay
taxes on the money when they withdraw it.
Lower-income taxpayers, for example, married couples whose adjustable
gross income is less than $57,500, can benefit from the IRS Retirement
Savings Contribution Credit.
The amount of the credit is determined by adjusted gross income (AGI)
and an eligible contribution to an IRA, a 401(k) or the TSP.
The credit is determined on a sliding scale. Clarkin said the minimum
amount for those eligible is $400 ($200 per individual) if their AGI is
less than $57,500. The maximum amount of the credit is up to $2,000
($1,000 per individual) if their AGI is $34,500 or less.
Clarkin said the taxpayers must meet the AGI criteria for contributing
to an IRA, a 401(k), or the TSP account. The credit is a percentage of
the qualifying contribution amount to an IRA, 401(k) or TSP, with the
highest rate for taxpayers with the least income.
Federal employees also can create a flexible (medical) spending account
(FSA) and a high-deductible health savings account (HSA), he said.
Contributions can reach a maximum of $5,000 per year per individual for
health care FSA accounts, for child care and dependent care the limit is
$5,000 per household which is in pre-tax money. The disadvantage is the
money must be spent in that benefit year or it’s lost.
Clarkin said employees who choose a High Deductible Health Care plan and
put their contribution into an HSA can help reduce their taxes and save
money for medical expenses or for retirement. The maximum contribution
for an individual coverage plan is up to $3,100 and up to $6,250 for
Family coverage of pre-tax money. The advantage of this account is if
the money isn’t spent it can accumulate and roll over to the next year
indefinitely, he said.
Additionally, Clarkin stated the money withdrawn and spent on medical
needs is non-taxable. Participants who do not use or need to spend money
on health care can invest the balance of their money on investments from
money markets accounts, bonds, mutual funds, stocks to investing with
brokers depending upon their health care plan, much like that of an IRA
“If at your full retirement age you have a remaining balance in your HSA
account you can withdraw the money from the HSA account without
penalty,” he said. “All money withdrawn would be taxed as ordinary
Clarkin noted HSA accounts are not for everyone, and anyone considering
these accounts should talk to their insurance company, health care
provider and even their financial planner before deciding to open an
Many other contribution or interest credit programs are available to
federal and public employees to help them reduce taxes. These include
child care, home mortgage interest, educational contributions and
charitable donations or contributions.
Clarkin said some limits may be placed on programs, such as the
educational contributions into a 529 or Coverdale accounts.
This money grows tax deferred, but must be spent on education expenses
to remain nontaxable, he added.
In the financial readiness program, Clarkin said he can meet with all
Department of Defense-related Soldiers, civilians, contractors and
Family members to provide assistance in helping them navigate their
financial benefits and choices.
Generally the assistance entails explaining the advantages and
disadvantages of different types of financial investments or actions.
If requested, Clarkin also can provide information about prospective
commercial firms that handle a specific type of financial transaction.
Other monetary matters Clarkin has information about include budgeting
concerns or issues, credit card and other debt, saving strategies, etc.
For more information, call ACS at 608-388-6812/3505.