How Retirees Can Avoid a Surprise Federal Tax Penalty in 2019

money trouble
Photo by wavebreakmedia / Shutterstock.com

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
  • Pensions
  • 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.

Find the right financial adviser

Finding a financial adviser you can trust doesn't have to be hard. A great place to start is with SmartAsset's free financial adviser matching tool, which connects you with up to three qualified financial advisers in five minutes. Each adviser is vetted by SmartAsset and is legally required to act in your best interests.

If you're ready to be matched with local advisers who will help you reach your financial goals, get started now.

Read Next
7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

17 Home Upgrades That Rarely Help Close a Sale
17 Home Upgrades That Rarely Help Close a Sale

Real estate agents give these renovations low marks when it comes to helping sell homes.

60% of People With This Disease Don’t Know They Have It
60% of People With This Disease Don’t Know They Have It

Millions of people overlook this potentially potent condition that tends to strike women and older adults.

Watch This: Organize Your Home With Dollar Tree Products
Watch This: Organize Your Home With Dollar Tree Products

Here’s how to organize every corner of your home using only items from a dollar store.

Beware These 5 Common Work-From-Home Scams
Beware These 5 Common Work-From-Home Scams

You can spot scammers and con artists with a little know-how.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
Will I Get My Ex-Husband’s Social Security When He Dies?
Will I Get My Ex-Husband’s Social Security When He Dies?

Two factors determine how much money is coming to you.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on these familiar purchases. Yes, even pregnancy tests.

13 Brilliant Bulk-Buy Items on Amazon
13 Brilliant Bulk-Buy Items on Amazon

Every household should have these products on hand. Buying them in bulk on Amazon saves you cash.

6 Reasons I Will Never Trust Suze Orman
6 Reasons I Will Never Trust Suze Orman

Beware: The self-proclaimed personal finance expert has a track record that suggests more sizzle than steak.

5 Household Disinfectants That Can Destroy the Coronavirus
5 Household Disinfectants That Can Destroy the Coronavirus

You likely already have some of these products at home.

America’s Most Reliable Appliance Brand Is a Surprise
America’s Most Reliable Appliance Brand Is a Surprise

Have you heard of this appliance manufacturer?

This Type of Social Security Benefit Is Often Overlooked
This Type of Social Security Benefit Is Often Overlooked

The Social Security Administration is not helping certain people get money to which they are entitled, a report says.

Getting These 2 Shots Could Reduce Your Risk of Dementia
Getting These 2 Shots Could Reduce Your Risk of Dementia

These vaccines may lower the risk of Alzheimer’s disease by up to 40%.

8 Things That Are Free in August
8 Things That Are Free in August

As summer enters the home stretch, we’ve rounded up these sizzling freebies.

9 Everyday Problems You Can Solve With Vaseline
9 Everyday Problems You Can Solve With Vaseline

Forget expensive specialty products. Good ol’ petroleum jelly can address many common annoyances.

16 Amazon Purchases That We Are Loving Right Now
16 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

19 Purchases That Buyers Almost Always Regret
19 Purchases That Buyers Almost Always Regret

Think twice before buying these things.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

8 of the Worst Things to Buy at a Dollar Store
8 of the Worst Things to Buy at a Dollar Store

Not everything sold at dollar stores is a great bargain or a safe purchase. Here’s our list of products to avoid.

41 Things You Should Never Buy
41 Things You Should Never Buy

Some purchases are just plain dumb. Give yourself — and your budget — a break. Don’t spend money on this stuff.

Homeowners Say These 2 Kitchen Appliance Brands Are Best
Homeowners Say These 2 Kitchen Appliance Brands Are Best

One brand takes five of the top honors, while another ranks highest in three categories.

The 7 Best Things to Shop in August — and 5 to Avoid
The 7 Best Things to Shop in August — and 5 to Avoid

Here’s how to navigate August sales and discounts — which might look a little different this year

9 Indestructible Products That Are Worth the Price
9 Indestructible Products That Are Worth the Price

If you’re willing to pay a little more for these products, you may never have to shop for another again.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.