Because of the new law change, retirees who receive a monthly pension or annuity check may need to raise or lower the amount of tax paid during the year. The easiest way to do that is to use the Withholding Calculator or read Publication 505, Tax Withholding and Estimated Tax. Although this calculator is designed for employees who receive wages, it can also help those who receive pension or annuity payments monthly or quarterly.
If you do not choose to have taxes withheld from your income, you should make estimated tax payments. The term “income” also includes pension and annuity income, and the taxable part of social security benefits.
Estimated tax payments are due quarterly and the remaining quarterly due dates for 2018 are Sept. 17, 2018 and Jan. 15, 2019. You can pay their taxes anytime throughout the year as long as they indicate the tax year and where to apply the payment. Please visit IRS.gov/payments to explore all IRS payment options.
Here are some things retirees should know about their withholding and using the calculator:
Before using the calculator, you should have a copy of last year’s tax return. Also, knowing or having a record of the total federal income tax withheld so far this year will also make the results more accurate.
Based on your responses, the Withholding Calculator will recommend the number of allowances a pension recipient should claim. If the number is different from the number you are claiming now, you should fill out a new withholding form. If claiming zero allowances still doesn’t cover your expected tax bill, the tool will recommend asking your payor to withhold an additional flat-dollar amount from each pension payment.
Because of the limited time left in 2018, some retirees may be unable to adequately cover the expected tax liability through withholding. In that case, you could instead make an estimated or additional tax payment directly to the IRS.
Please remember that LR Tax & Accounting Services, Inc. is always here to help with any questions and concerns. We offer tax planning, tax resolution, tax returns for individuals and business, accounting, payroll and bookkeeping. Please contact us today to get a quote or ask a question!
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