The IRS has urged retirees to perform a “paycheck checkup” using the Withholding Calculator to verify that they were having the right amount of tax withheld from their pensions and annuity checks. This guidance is part of the “Paycheck Checkup” campaign aimed at encouraging taxpayers to promptly check their tax situation. Taxpayers have at their disposal a variety of resources and tools to estimate their tax liability. One such tool is the Withholding Calculator that can help retirees estimate their total income, deductions and tax credits for 2018, and is also useful to those who receive pension or annuity payments on a regular schedule. Further, the calculator would recommend the number of allowances a pension recipient should claim.
Moreover, if the calculator results indicate a change in withholding amount, retirees should fill out a new withholding form. Further, the Service stated that claiming more allowances would reduce the amount of tax taken out and claiming fewer allowances would increase tax withholding. In addition, the IRS urged retirees to submit revised Form W-4P to their payors to give them time to apply any required withholding changes.
Retirees are further advised to see Publication 505, Tax Withholding and Estimated Tax, for more information about the penalty for underpayment of tax, including details on exceptions and special rules that might apply. Moreover, retirees can make estimated tax payments electronically using IRS Direct Pay or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS) or visit IRS.gov/paymentsfor more payment options. Finally, retirees can also ask the Social Security Administration to withhold tax on their Social Security benefits and request voluntary withholding. To request voluntary withholding and for more information, taxpayers should obtain Form W-4V, available on IRS.gov.
For more information on calculating your withholdings, contact Larson & Company today.