Have You Done A Paycheck Checkup This Year?
When the Tax Cuts and Jobs Act passed in late 2017, it made big changes to the way taxes are calculated for most taxpayers, including retirees. Among those changes, according to the IRS, are new tax rates and brackets, an increased standard deduction, the elimination of personal exemptions and limited or discontinued deductions. As a result, many taxpayers may need to raise or lower the amount of tax they pay in during the year.
For retirees who receive a monthly retirement paycheck, this may mean changing the amount of federal income tax you have withheld.Use the IRS Withholding CalculatorThe IRS has an online Withholding Calculator to help you determine how much tax you need to have withheld. Although it is primarily designed for employees who receive wages, this useful online tool can also be helpful when you receive retirement pay on a regular schedule.You can use the IRS online calculator to estimate your total income, deductions and tax credits for 2018. The IRS recommends that you treat your retirement pay like income from a job by entering the gross amount of each payment, how often you receive a payment (monthly) and the amount of tax withheld so far this year. Click here for the IRS online calculator.To protect taxpayer privacy, the IRS emphasizes that the Withholding Calculator does not request any personally-identifiable information such as name, Social Security number, address or bank account numbers. Additionally, the agency says it does not save or record any of the information entered on the calculator.To use the Withholding Calculator most effectively, you should have a copy of last year's tax return at hand. In addition, knowing or having a record of the total federal income tax withheld so far this year will also make the tool's results more accurate. You can find this information on your most recent RAS, which is easily available on myPay. After filling out the Withholding Calculator, the tool will recommend the number of allowances you should claim.Changing Your WithholdingIf the number is different from the number you claiming now, the IRS recommends changing your withholding. You can change your withholding in myPay, or fill out and mail an IRS Form W-4 for retirees and the IRS Form W-4P for annuitants. Be sure to use the 2018 forms if you are sending the form before January 1, 2019. The forms are available on the IRS website:Claiming more allowances reduces the amount of tax taken out; claiming fewer allowances increases tax withholding. If claiming zero allowances still doesn't cover your expected tax bill, the tool will recommend that you request to withhold an additional flat-dollar amount from each payment.Because of the limited amount of time left in 2018, some retirees may be unable to adequately cover their expected tax liability through withholding. In that case, IRS says another option is to make a quarterly estimated or additional tax payment directly to the IRS.The IRS emphasizes that the U.S. tax system operates on a pay-as-you-go basis, so everyone is required, by law, to pay most of their tax liability during the year. Doing so, the IRS says, will help avoid a surprise year-end tax bill and in some instances, a penalty.DFAS customer service representatives cannot provide tax advice or recommendations on withholding. Please consult a tax professional if you have questions about your taxes.