Thanks to the Tax Cuts and Jobs Act of 2017, many of us saw our income tax requirements and need for withholding shift. The IRS is now warning a particular demographic of the need to carefully review withholdings in light of upcoming changes brought about by the TCJA: retirees.
In particular, retired persons who draw social security and are higher-income overall may need to adjust withholding in order to avoid paying taxes for fiscal year 2018. In addition, retirees who receive income from pensions, annuities and tax-deferred retirement accounts may also be in for a shock when filing their 2018 taxes.
Unless sufficient taxes are withheld from income, a taxpayer must either pay estimated taxes quarterly or pay at the end of the fiscal year and face a penalty. Many taxpayers over 57 (a key age for workers under the Federal Employees Retirement System) are in the demographic likely affected by these changes, particularly if they are in a higher income tax bracket.
These changes could also have an impact on state tax returns, depending on the necessary withholdings, tax brackets and other factors. The IRS is suggesting that all retired taxpayers perform a checkup on their withholdings in order to stave off potential surprises come tax time. They’ve even provided a handy withholding calculator that taxpayers can use to determine if they are currently paying enough.
If you have questions about your particular tax strategy, especially concerning withholding and estimated taxes in order to prevent accruing penalties and interest for fiscal year 2018 taxes, speak with a qualified tax attorney today.