Sean Reed of Reed’s Tax Service says the State of Oklahoma does a great job running commercials letting taxpayers know about new taxes they might owe. The state agency falls short, though, when there is one that could save people money, he added.

For the past 70 years, Reed’s Tax Service has helped many people with their tax preparation, especially civil and federal service retirees. Sean Reed says now those retirees might be leaving money on the table when it comes to tax time, especially if they or their tax preparer doesn’t know some important information.

People often ask the question, "Does Oklahoma tax all of my retirement income?" Reed said for Civil Service Retirement System (CSRS) retirees, the answer is no.

He explained that there are two types of retirement at Tinker Air Force Base: CSRS and the Federal Civil Service Retirement System (FERS). CSRS is the older form and was replaced by FERS for federal employees who first entered covered service on and after Jan. 1, 1987.

Under CSRS, retirees could choose to take their retirement in lieu of social security and exclude up to $10,000 of their retirement benefits from being taxed.

Many workers chose that option, but a loophole in Oklahoma law dramatically reduced their retirement income. While Social Security benefits are exempt from state income tax, annuity payments from the CSRS are not. That glitch in Oklahoma’s tax law meant reduced retirement income for CSRS federal workers in the state.

Midwest City’s own Rep. Gary Banz, a Republican, sought out to remedy the inequity of retirees who had essentially the same benefits but were being treated differently under Oklahoma’s tax law.

In 2006, Banz and former state Sen. Debbie Leftwich, D-Oklahoma City, finally ended that inequity. Under their law, which started in 2007, retirees could exclude part of their CSRS income from their state taxes. The law states the percentages as follows: 2007 - 20 percent, 2008 - 40 percent, 2009 - 60 percent, 2010 - 80 percent, and 2011 and thereafter - 100 percent.

"2010 is the year that’s really timely. These others (pointing to the years 2007 through 2009) are too late," Reed said. "If you owe the federal government, you owe them forever, but if they owe you, they will only owe you for three years. It’s not fair."

Therefore on April 15, 2014, anyone with money sitting out there from their 2010 tax returns will see that money go away.

Tax details

Reed pointed to page 3 of Form 511 (Resident Income Tax Return) which, in Section 511-A, goes into the different exclusions. He said this form was added in 2007 specifically for people with retirement in lieu of social security.

"I see a lot of preparers and retirees that do their own taxes, bring it in for me to look at. It’s a very easy thing to figure out," Reed said. "If they took the $10,000 exclusion, they are leaving a lot of money on the table."

Reed gave the example of a retiree with $38,000 in income who took the $10,000 exclusion and still had $28,000 in income taxed when they shouldn’t have.Reed says the retiree should only have had $8,000 taxed, and at 5 percent, there is a $1,500 refund sitting out there they didn’t get.

"The state has never done anything to let the retirees know this," Reed said. "I don’t want that money lost."

"I have had clients get $3, 4 or $5,000 back for taxes owed over a three year period. I’m not saying everybody will get that amount; some may only get $1,000.

Eddie Reed, Reed’s father and co-worker at Reed’s Tax Service, retired in 1999 and has fully known about this information. In their office, father and son have set up their tax preparation software to automatically prompt for this information.

"Ours does this, but unfortunately not everybody else’s does," he said.

"2007, 2008 and 2009 are gone and 2010 is gone in a little over four months," Reed said of the CSRS retirement income tax refunds. "Going forward, all of the rest of CSRS retirement income has the full exclusion."

But Reed doesn’t think everyone knows about it. 

Willing to help

Reed has numerous other tax tips for retirees to help keep more money in their pocket instead of "giving it to Uncle Sam."

"All this affects the part of our community, in my opinion, that needs the money the most. They are on fixed incomes and this can make a difference in paying for medications or not."

Reed invites retirees to stop by and bring their tax returns for him to look at, which he does not charge to do.

"I don’t care if I have a line of retirees out the door," he said. "It takes just a second to look and see if it’s done right."

"One of the things about working in this business, and it’s a good thing, is that you find out a lot about people’s lives. I see people struggling, and they need these extra dollars."

Reed’s Tax Service is located at 2231 S. Air Depot Blvd. in Midwest City. They can be reached at (405) 732-2446.