Check Taxation of Pension Payments, IRS Advises Taxpayers
The IRS has issued a reminder regarding the importance of making sure that tax treatment of pension payments is correct, in light of the enactment of the Tax Cuts and Jobs Act (TCJA) in December 2017. The reminder is contained in IR-2018-180
, which the IRS issued on Sept. 7.
While the reminder is aimed at individuals who receive pensions, employers and plan administrators also may find it useful information that they can impart to recipients and beneficiaries of their pension plans, as well as employees who are nearing retirement.
The TCJA changed the way tax is calculated for most taxpayers — including retirees. The reforms it made included changing tax rates and brackets, increasing the standard deduction, removing personal exemptions and limiting or discontinuing certain deductions. Consequently, many taxpayers may need to raise or lower the amount of tax they pay during the year.
For retirees who receive a monthly pension or annuity check, this may mean changing the amount of federal income tax they have withheld. The easiest way to do that, says the IRS, is to use the withholding calculator it makes available on its website. The IRS’ withholding calculator can be found here
The withholding calculator can be used to estimate total income, deductions and tax credits. The IRS says that retirees should treat their pension like income from a job by entering the gross amount of each payment, how often they receive a payment (monthly, quarterly, etc.) and the amount of tax withheld so far this year.
Pension recipients can make a withholding change by filling out Form W-4P
, available on the IRS website, and giving it to their payer. This form is similar to the more familiar Form W-4
that employees give to their employers. To give payors time to apply any required withholding changes to as many payments as possible, the IRS urges retirees to submit revised Forms W-4P to their payors as soon as they can.