Now that you’re a retiree, you'll adjust the way you file your taxes each year. Before you retired, you may have used IRS Form 1040 to report your wages for calculating the taxes you owed. Or you may have reported self-employment income on Schedule C or Schedule C-EZ, which you attached to your 1040, or income from royalties, rents, or other compensation on Schedule E . If you continue to receive any of these types of income after your retirement, you’ll continue to use these forms. But if you now receive social security benefits or a pension income, you’ll need to report this income on other forms.
Given the fact that tax is not automatically withheld from retirement checks, you may need to establish your own preferred method for handling your taxes. In order to determine how much tax should be taken out of your retirement check, you can use the IRS W-4 series of forms in combination with Publication 525, which lists all forms of taxable and nontaxable retirement income.
Calculate your Retirement Taxes with the IRS Pension Withholding Calculator
With some exceptions, your retirement income is taxable. IRS Publication 525, “Taxable and Nontaxable Income,” lists types of income and which portions, if any, are taxable. Examples of income not taxed include worker’s compensation, veteran’s benefits and some types of disability pay for government or military incidents. Examples of taxable income include unemployment compensation, alimony, military retirement pay and portions of pensions and annuities. If your employer’s pension plan did not tax the money that was deposited into the plan, you’ll pay taxes on it when you receive it as retirement income. If you receive social security benefits, a portion may be taxable, depending on the amount of benefits and your filing status.
If you're a new retiree, or a seasoned retiree whose financial situation has changed, you may find it challenging to know how to calculate the taxes taken out of retirement checks. You may want to consult with a trusted CPA, tax attorney or financial planner and allow that professional to help guide you through this process. You can also use the worksheets on your tax forms to calculate your taxes. The IRS provides a tax withholding and pension withholding calculator to help you estimate the amount you’ll need to have withheld from each check to cover the taxes that you owe.
If you're at least 60 years old and you need more help than the tax withheld calculator can provide, the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs provide free assistance for completing and filing your tax returns. Contact your nearest IRS office or call the IRS at 800-829-1040 to find the VITA or TCE site closest to where you live.
Taxes are Not Automatically Withheld from Retirement
If you're a new retiree, no, your taxes are not automatically taken out of your first retirement checks. The IRS allows you to pay taxes on your retirement income in various ways. Typically, choose to pay your taxes by voluntary tax withholding payments or by periodic, estimated payments.
Tax withholding payments. You may decide that it’s easier to have money withheld from each retirement check and to file one annual return than to file quarterly returns based on estimated tax payments. If you choose to have your tax payments withheld from each check, set up this withholding method by submitting forms to the payers of your income. For example, submit Form W-4 for wages and military retirement pay, Form W-4P for annuity and pension pay and Form W-4V for unemployment compensation, railroad retirement pay and social security income.
Estimated tax payments. If you choose to file quarterly tax returns and make estimated tax payments, complete IRS Form 1040-ES. A worksheet is included with this form to help you estimate your tax payments. The specific due dates, which are also listed on this form, are April, June and September of the current year and January of the following year.
- IRS: Tax Guide for the Retiree
- IRS: Withholding Calculator
- IRS: Pensions and Annuity Withholding
- IRS Form W4-V, Voluntary Withholding Request
- IRS: Publication 525
- IRS. “2019 Instruction 1040,” Pages 62-73. Accessed Feb. 19, 2020.
- IRS. ”About Form 1040, U.S. Individual Income Tax Return.“ Accessed Feb. 19, 2020.
- IRS. “Publication 505 Tax Withholding and Estimated Tax.” Accessed Feb. 19, 2020.
- IRS. “Retirement Plan and IRA Required Minimum Distributions FAQs.” Accessed Feb. 19, 2020.
- IRS. “Retirees: Avoid a Surprise Tax Bill; Get Enough Tax Taken Out of Pension Payments; IRS Withholding Calculator Can Help.” Accessed Feb. 19, 2020.
- Use Form W-4V to have taxes taken from your Social Security check. You can request 7 percent, 10 percent, 15 percent or 25 percent withheld each month.
- If you overpay your estimated taxes, you can leave the overpayment on file with the IRS and use it for your estimated taxes the following year.
- Even if you receive Social Security retirement benefits, you must pay Federal Insurance Contributions Act taxes (FICA) taxes on your earned income. FICA taxes include Social Security and Medicare. Self-employed individuals and independent contractors pay 13.3 percent in 2011 -- employees pay 5.65 percent.
Victoria Lee Blackstone was formerly with Freddie Mac’s mortgage acquisition department, where she funded multi-million-dollar loan pools for primary lending institutions, worked on a mortgage fraud task force and wrote the convertible ARM section of the company’s policies and procedures manual. Currently, Blackstone is a professional writer with expertise in the fields of mortgage, finance, budgeting and tax. She is the author of more than 2,000 published works for newspapers, magazines, online publications and individual clients.