According to a recent announcement by the IRS, retirees might not be withholding enough for taxes this year. This is due to vast tax changes in 2018, making old withholding levels obsolete. The IRS is urging retirees to check their withholdings now and make adjustments if needed to avoid penalties.
Could it be you?
How do you know if you are withholding enough? While the IRS offers a new withholding calculator online, it’s designed for employees who are paid wages – not a great option for retirees. The only good way to avoid a tax surprise is to conduct a projection based on your specific situation. You will need to consider taxes already paid, taxes yet to be paid, and estimate total income and deductions to come up with an accurate projection.
Steps to take
If the results of the projection show that you are lagging behind, you still have a bit of time to adjust withholdings or make estimated tax payments. Here are some ways to do this:
- Adjust pension withholding. In order to change your pension withholdings, you need to fill out Form W-4P and give it to your pension plan provider.
- Adjust IRA distribution withholding. To change IRA withholdings, typically you can go online or call the account provider to update the withholding amount or percentage.
- Adjust Social Security voluntary withholding. To adjust the voluntary withholding on your Social Security payments, you need to fill out Form W-4V and return it to your local Social Security office by mail or in person.
- Make an estimated payment to the IRS. If withholdings won’t be enough or you are worried about timing, you can make a payment to the IRS directly. Form 1040-ES has a voucher that can be sent with the payment and needs to be postmarked by Jan. 15, 2019 to be applied to your 2018 taxes.
Remember, penalties can be added to your taxes if you don’t pay enough during the year, so it’s important to review your withholdings as soon as possible to avoid a surprise when you file your taxes. Sound complicated? It can be. Please call if you want help evaluating your situation.