The IRS is warning retirees to get an idea of how much income tax you may owe for 2018, and determine whether you need to make an estimated payment by January 15th, 2019. Recent changes to the tax law lowered individual rates and tax brackets slightly. The standard deduction almost doubled from $6,350 to $12,000, and single taxpayers older than 65 can deduct an additional $1,600 ($2,600 for married taxpayers who file jointly). On the other hand, personal exemptions have been eliminated. Tax advisors say that on average, most retirees will likely see a decrease in the taxes they owe, but individual circumstances vary greatly.
Retirees need to pay attention to income from tax-deferred retirement accounts, pensions, annuities and Social Security benefits, in addition to other streams of income from any jobs, rental property, or income from a business. Failing to pay the right amount throughout the year could subject you to a tax penalty next April when your federal return is filed.
This late into 2018, one way to prevent a penalty is to pay an estimated, or additional payment that brings your estimated tax payments to least 100 percent of your prior year tax liability, or 110 percent of the prior year liability, if you believe you will have higher income in 2018. If you think you may have underpaid during the year, there’s still time to make an estimated payment by January 15th, 2019 to stop penalties from accruing. To prevent the same problem next year, consider adjusting withholding taxes from pension or annuities, as well as withdrawals from retirement accounts.
According to TSCL’s Senior Surveys, more than half of retiree households pay taxes on Social Security benefits. The new tax law did not change the income thresholds that subject Social Security benefits to taxation. Taxpayers with incomes in excess of $25,000 (single) or $32,000 (joint) pay taxes on as much as 50% of Social Security benefits. For taxpayers with income exceeding $34,000 (single) and $44,000 (joint), up to 85% of Social Security benefits may be taxed. Rather than paying quarterly estimates, taxpayers may use Form W-4V to withhold a flat rate from Social Security checks: 7%, 10%, 12%, or 22%.
You may want to try the IRS’ online withholding calculator at https://www.irs.gov/individuals/irs-withholding-calculator. Keep in mind that none of the info in this article is tax advice. If you have questions consult a professional tax advisor.