Pension / Social Security
If you’re planning to retire soon, now is the time to think about the 2022 federal income taxes, as taxation of retirement income is different than taxation of employment income. These changes are mainly due to the way taxes are withheld from retirement income, according to Fedweek.
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To avoid paying a lot of federal income taxes when filing the return, with some planning, it’s more beneficial to pay your taxes over the course of the tax year.
Fedweek says that with regard to federal annuities (CSRS or FERS), you probably filled out a W-4P with your retirement papers and now taxes are withheld from your monthly payments.
“You probably based this deduction on the last W-4 you filed while you were an employee and it will most likely cover any taxes owed from your CSRS or FERS annuity. There’s a little problem here. True it becomes problematic is when we get to your Social Security and TSP withholding,” Fedweek said.
The key to avoiding a tax surprise, especially in your first year of retirement, is to pay your Social Security income tax while you’re at it, recommends Fedweek.
See: Social Security Benefits Can Be Withdrawn Early – What Does This Mean for You?
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You can do this per Fedweek:
- Ask Social Security to withhold your monthly payments.
- Make quarterly estimated tax payments. For these payments, due on April 15, June 15, September 15, and January 15, remember to set aside the money for the payment and remember to actually send it.
- Increase the amount of withholding by completing the withholding section of your Thrift Savings Plan (TSP) withdrawal form. If you’ve already started distributions and want more to be withheld, you can submit a W-4P.
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