Schedule M Question

My interpretation of the wording in the tax act leads me to conclude that she is not eligible for the government retiree credit because she is not collecting a pension for work she performed as a government employee who was not participating in Social Security. The ex-husband is the retiree who may meet the definition if he was exempt from Social Security taxes at the time he was employed.

I have not reviewed any IRS guidance on this issue.

Relevant part of the law is below for others to interpret. The reference to Sec. 2201 is to ERP (Economic Recovery Payment for SSA & VA Benefit recipients).

SEC. 2202. SPECIAL CREDIT FOR CERTAIN GOVERNMENT RETIREES.

(a) In General- In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by subtitle A of the Internal Revenue Code of 1986 for the first taxable year beginning in 2009 an amount equal $250 ($500 in the case of a joint return where both spouses are eligible individuals).

(b) Eligible Individual- For purposes of this section--

(1) IN GENERAL- The term `eligible individual' means any individual--

(A) who receives during the first taxable year beginning in 2009 any amount as a pension or annuity for service performed in the employ of the United States or any State, or any instrumentality thereof, which is not considered employment for purposes of chapter 21 of the Internal Revenue Code of 1986, and

(B) who does not receive a payment under section 2201 during such taxable year.

The code does not say who had to perform the service.

The pension has to be a because of someone having performed services.

I'm with Art on this one. The law could have easily excluded survivors and exes, but it didn't.

The question came up during TCE training as it pertains to survivors. I wish I could be more definite about the source, but someone checked with either OPM or IRS, and the word was survivors get the credit.

That also makes sense in that the whole point of the credit was to toss $250 at people who would otherwise be getting SS benefits (and the $250) if they weren't getting the pension.

Phil Marti Clarksburg, MD

Count me in with Art & Phil - she gets the credit.

That which is NOT specifically prohibited certainly seems to be allowed and I could find nothing that specifically prohibited ex-spouses or survivors from the credit.

Gene E. Utterback, EA, RFC, ABA

I concur. I know of one survivor on a joint/survivor option of a [public] school retirement plan - where the teacher retired before the school in question became subject to Social Security rules. That pension qualifies. The survivor is the only recipient. [The return has already been submitted.]

All that is required is:

1) A pension/annunity was received. 2) That pension was funded via wages NOT subject to FICA from any domestic government agency. 3) No $250 payout was received earlier in the year by the taxpayer.

There is no requirement that the receiving taxpayer be the same person as the one who funded via wages. Inherited pensions qualify.

Now, in your case, this is a property split due to divorce. That could create TWO (or more) $250 credits for the same qualifying pension. There is nothing in the statute that indicates that a pension need split its $250 credit among multiple recipients. Therefore, I don't see a problem if BOTH recipients each claim $250.

One question not answered: Do both spouses get the credit when in a community property state and the pension is community property (which inherited pensions are NOT - at least in California)? Would the same couple only get one credit if in a non-CPS? I think that for CPS, CP pensions qualify BOTH spouses.