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Tax Guide for
the Retiree
A series of informational publications designed to educate Frequently Asked Questions (FAQs)
taxpayers about the tax impact of significant life events.
This brochure is intended for individuals who recently retired or have
retirement plans in their near future
Tax Benefits and Credits
WHAT DIFFERENCES ARE THERE IN » Form W-4 for wages and military retirement pay
REPORTING MY RETIREMENT INCOME AND MY » Form W-4P for pensions and annuities
INCOME DURING MY WORK CAREER?
» Form W-4V for social security, unemployment compensation, and
When you received your Form W-2 prior to retirement, you reported your railroad retirement income
wages on an individual income tax return, such as Form 1040. You also may
have received self-employment income on Form 1099-MISC, Miscellaneous To ensure you do not have too much or too little income tax withheld from
Income, if you were a contractor/subcontractor or if you performed independent your pay, use the search engine on www.irs.gov and input the word
projects or services. You reported your income by attaching a Schedule C “calculator”. Click on the “IRS Withholding Calculator” link and fill in the
or C-EZ to your Form 1040 and your self-employment tax on Schedule SE. information that applies to you. You may use the results of this program to
After you formally retire, you would do the same if you continue to receive wcomplete the Form W-4.
these types of income. l Estimated Tax Payment – If you have not paid enough federal tax through
When retired, you may receive a Form SSA-1099 for social security benefits withholding, you should make estimated tax payments to the Internal
and/or a Form 1099-R for pension income. You will include these types of Revenue Service (IRS). This can be done by completing a quarterly
retirement income on your Form 1040, in addition to any other income you payment voucher (Form 1040 ES) and mailing it to the IRS.
may have received during the tax year. NOTE: If you do not make sufficient and timely federal tax payments, you
could incur an estimated tax penalty.
WHAT TYPES OF INCOME ARE TAXABLE?
The types of income which are taxable include, but are not limited to: military To calculate your estimated tax payments, you can use the worksheet with
retirement pay, all or part of pensions and annuities, all or part of Individual Form 1040 ES. Estimated tax payments are due each year on April 15th, June
Retirement Accounts (IRA), unemployment compensation, gambling income, 15th, September 15th, and January 15th of the following year.
bonuses and awards for outstanding work, alimony or prizes. A portion of Example: John realizes that selling his mutual funds in December resulted in
your social security benefits may be taxable based on your other income and a large gain. He can estimate the effect of that gain and pay the amount by
filing status. January 15th, to avoid a penalty.
For additional information see Publication 525. For additional information see Publication 505.
WHAT TYPES OF INCOME ARE NON-TAXABLE? RETIREE QUESTIONS AND ANSWERS:
Some income is not subject to tax. A few examples are veteran’s benefits, Q I am retired and receive social security, but I have now taken a part
disability pay for certain military or government related incidents, worker’s time job. Why are they taking social security taxes out of my pay?
compensation, and cash rebates from a dealer or manufacturer of an item A The Federal Insurance Contribution Act, or FICA, provides for a Federal
you purchase. System of old-age, survivors, disability, and hospital insurance. The
For additional information see Publication 525. old-age, survivors, and disability insurance part is financed by the social
security tax. Generally, employee wages are subject to social security
WHY IS MY PENSION INCOME TAXED? and Medicare taxes regardless of the employee’s age or whether he or
she is receiving social security benefits.
Your pension could be fully or partially taxable depending on how the money
was put into the pension plan. If all the money was contributed by the employer Q How do I determine how much of my social security is taxable?
or the money was not taxed before going into the plan, it would be taxable. A Compare the base amount found in Publication 915, Social Security
When your contribution to the plan is from already-taxed dollars, that part and Equivalent Railroad Retirement Benefits, to the total of one-half of
is not taxed, but must be recovered over your life expectancy. There are your social security benefits plus all of your other income (including tax-
worksheets in the instruction books for versions of Form 1040, including exempt income). If the base amount exceeds your income computation,
Form 1040 A. then your social security is non-taxable. For the most complete
calculation, you should use the worksheets found in Publication 915 or
For additional information see Publication 575 or 915.
the instruction books for the 1040 series.
TAX WITHHOLDING AND ESTIMATED TAX Q How will I know how much of my pension is taxable?
PAYMENTS
A Your pension will be reported on a Form 1099R. Form 1099R will show
Our tax law provides for a pay-as-you-go system which requires taxes to be paid you how much you contributed to the plan and how much tax was
on income as it is received. There are two ways which taxes are typically paid: withheld. For new retirees, you will generally use the “simplified method”
l Tax Withholding – You can request federal tax be withheld from your to compute the taxable portion of your pension. (See Publication 575,
pension, social security, unemployment compensation, etc., by submitting Pension and Annuity Income). Generally, your contributions to the plan
the appropriate following form to the payer of the income: continued...
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