Retirees who expect to earn income this year should check their withholding, or they could be in for an unpleasant surprise in 2019.
Income received by retirees can be taxable in certain situations. And any taxpayer who withholds too little of their income for federal taxes generally risks incurring a larger tax bill than expected — and possibly a penalty for not paying taxes when due — next spring.
It’s common knowledge that people still in their working years need to check their tax withholding now that tax reform has increased the size of most folks’ paychecks. But the need for retirees to do the same has received less attention.
Taxes in retirement
The types of retiree income that may be taxable in at least some situations include funds from:
- Part-time jobs
- Retirement accounts
- Social Security
For example, the Wall Street Journal reports that tax reform is affecting pension payments in a manner similar to how it’s impacting worker paychecks:
“A little-noticed effect of last year’s tax overhaul is that many pension payments are now larger, reflecting the new lower tax rates in effect for 2018. But this bump-up increases the risk that recipients will be underwithheld at tax time next year — and therefore owe a penalty. To avoid this, retirees should immediately check their withholding and adjust it if necessary.”
Adjusting your withholding
Any taxpayer — whether worker or retiree — who hasn’t used the Internal Revenue Service’s new withholding calculator should do so ASAP. It was released earlier this year, and the IRS recommends you use it to determine whether to adjust your withholding to avoid having too little — or too much — money withheld from your taxable income.
For pointers, check out the IRS’ video about the withholding calculator.
Workers who decide to adjust their withholding will need to submit a new Form W-4 to their employer.
Retirees may need to use one or more types of W-4, such as:
- Form W-4P (for pension recipients)
- Form W-4V (for beneficiaries of Social Security and certain other government payments)
To change the amount of taxes withheld from retirement account payouts, retirees should contact the retirement plan provider, according to the WSJ.
Have you checked on your federal tax withholding yet this year? Let us know if you made any adjustments by commenting below or over on our Facebook page.