How Retirees Can Avoid a Surprise Federal Tax Penalty in 2019

How Retirees Can Avoid a Surprise Federal Tax Penalty in 2019 Photo by wavebreakmedia / Shutterstock.com

Retirees who expect to earn income this year should check their withholding, or they could be in for an unpleasant surprise in 2019.

Income received by retirees can be taxable in certain situations. And any taxpayer who withholds too little of their income for federal taxes generally risks incurring a larger tax bill than expected — and possibly a penalty for not paying taxes when due — next spring.

It’s common knowledge that people still in their working years need to check their tax withholding now that tax reform has increased the size of most folks’ paychecks. But the need for retirees to do the same has received less attention.

Taxes in retirement

The types of retiree income that may be taxable in at least some situations include funds from:

  • Part-time jobs
  • Pensions
  • Retirement accounts
  • Social Security

For example, the Wall Street Journal that tax reform is affecting pension payments in a manner similar to how it’s impacting worker paychecks:

“A little-noticed effect of last year’s tax overhaul is that many pension payments are now larger, reflecting the new lower tax rates in effect for 2018. But this bump-up increases the risk that recipients will be underwithheld at tax time next year — and therefore owe a penalty. To avoid this, retirees should immediately check their withholding and adjust it if necessary.”

Adjusting your withholding

Any taxpayer — whether worker or retiree — who hasn’t used the Internal Revenue Service’s should do so ASAP. It was , and the IRS recommends you use it to determine whether to adjust your withholding to avoid having too little — or too much — money withheld from your taxable income.

For pointers, check out the IRS’ .

Workers who decide to adjust their withholding will need to submit a new to their employer.

Retirees may need to use one or more types of W-4, such as:

  • (for pension recipients)
  • (for beneficiaries of Social Security and certain other government payments)

To change the amount of taxes withheld from retirement account payouts, retirees should the retirement plan provider, according to the WSJ.

Have you checked on your federal tax withholding yet this year? Let us know if you made any adjustments by commenting below or .

Learn everything you need to plan your dream retirement

gives you the knowledge you need to retire on your own terms. Sure, you can pay a financial adviser, but this online course gives you total control to create a custom retirement plan around the things that make you happy.

You're going to get expert, personalized advice. You'll have access to the latest tools. And when it's complete, you'll be able to approach your retirement confidently and with peace of mind.

It's time to plan the best years of your life. Let's get started.

Popular Articles

6 Tips to Age-Proof Your Resume
6 Tips to Age-Proof Your Resume

Finding a job isn’t easy — and it sometimes feels like too much experience actually counts against you. These tips will help.

How All 50 States Tax Your Retirement Income
How All 50 States Tax Your Retirement Income

Find out which states are friendly, and not-so friendly, with the money you’ll need in your later years.

7 Reasons You Should Rent a Home in Retirement
7 Reasons You Should Rent a Home in Retirement

Renting is a better fit than owning for many retirees. Here’s how it can pay off during your golden years.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Trending Stories

Comments

897 Active Deals

More Deals