Taxes will continue to follow you into retirement, they just are a bit different and may require some adjusting to. Image: Yuriy K/Shutterstock.com
By: John GrobeIf you haven’t already received your W-2s for 2024, you should be getting them soon. The same is true for retirees, except the form that will be received is a 1099, not a W-2. 1099s contain pretty much the same information as W-2s.
I suspect that many non-retired readers also receive a 1099 form each year.
You might receive a 1099-INT if you receive interest payments from a brokerage or bank account.
A 1099-DIV could be received from a brokerage account if you receive dividends.
A 1099-MISC covers other income, including items such as royalties, rents, prizes and rewards.
But when you retire, you will get a whole new bunch of 1099s ending up in your mailbox (either electronic or snail mail).
You’ll get a SSA-1099 for Social Security payments. Note that Social Security will only withhold taxes if you ask them to; otherwise, nothing will be taken out of your Social Security payments for federal and (possibly) state income taxes. This could leave you holding the bag at tax time so be sure to request that taxes be withheld from your payments at the time you first apply for Social Security benefits. If you end up with a balance due (or perhaps a penalty) in your first year of receiving Social Security benefits, file a W-4V to have taxes (or more taxes) withheld from future payments.
OPM will send you a 1099-R for your FERS (or CSRS) annuity. Because part of what you will receive in your federal annuity includes the already taxed contributions that you made throughout your career, the form will list the taxable and tax-free portion of the money you received during the year. OPM will not automatically withhold state (if applicable) income taxes, though you can request them to do so. If you need to change your withholding, you can do it using OPM’s services online.
Yet another 1099-R will come from the Thrift Savings Plan. The TSP withholds for federal taxes, and the most common withholding on an individual payment is 20%. Those who are electing installment payments that will last for more than ten years or are based on the IRS life-expectancy table will have taxes withheld as if they are single and claiming 0 exemptions. Those who have been retired longer might find that the rate for installment payments is as if they were married and claiming 3 exemptions – that can be changed on the TSP website. It’s important to note that the TSP will not withhold taxes for state purposes. If you live in a state that taxes retirement income, you should make sure that you have enough money paid in to cover your state tax liability or at least avoid a penalty. You might want to make quarterly estimated tax payments or have more withheld from other sources of income.
1099s are also issued by IRA custodians. Most custodians will follow your wishes in withholding, both federal and state.
Taxes will continue to follow you into retirement, they just are a bit different and may require some adjusting to.
John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.
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See also
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