(WASHINGTON) -- Who wouldn't want an extra paycheck every year? For millions of retired soldiers that wish is about to come true, but not without some potential problems with the IRS.
The Department of Defense says it will change some dates when former soldiers receive their retirement pay and other benefits. Generally, the department cuts paychecks on the first day of every month. In the past, if the first day of the month fell on a weekend or holiday, the government would wait until the next business day to cut checks.
Beginning in October, that protocol will change. Instead of waiting for the end of the weekend or holiday, now the department will send checks on the last business day prior to the first of the month.
For 2011, this means two paydays will change. Checks scheduled for Oct. 3 will actually go out on Sept. 30, and those scheduled for Jan. 3, 2012 will be cut on Dec. 30, 2011.
This is mostly good news, especially for retired soldiers who have student loans, payday loans, or other types of loans set up for automatic withdrawal from their bank accounts, says Katie Savant, government relations director for the National Military Family Association.
But the change could also mean an increased tax burden, points out Joe Morrin, senior vice president of financial planning at First Command. Moving the January payment back into December means that retirees will receive 13 checks in 2011 instead of their normal 12, which means an 8.3 percent increase in taxable income.
The extra paycheck for 2012 could also increase the amount of Social Security benefits that are subject to taxation, Morrin says, which makes it even more important that retirees check in with their financial planners about the change. He also expresses concern over retirees’ Roth IRAs and potential underpayment penalties, especially for those who had a certain amount due on this year’s return and have not yet adjusted their withholdings.
Copyright 2011 ABC News Radio