If you’re still working, the likelihood of finding yourself with a nasty surprise at tax time is far less than if you are retired, especially if you are in your first year of retirement. Image: thodonal88/Shutterstock.com
Imagine – it’s April 18, 2024, and you’ve finally completed your 2023 federal income tax return. Once you see the bottom line, your first statement is not printable in this article, or in any other respectable publication.
Why? You find yourself owing a substantial amount of federal income tax, over and above what you’ve had withheld from your paycheck or retirement income. If you owe too much, you might even find yourself facing the dreaded “estimated tax penalty”.
If you’re still working, the likelihood of finding yourself with a nasty surprise at tax time is far less than if you are retired, especially if you are in your first year of retirement.
The reasons for this are:
· Social Security will not withhold federal income tax unless you ask them to. And, up to 85% of your Social Security benefits may be subject to federal income tax.
· The default withholding for Thrift Savings Plan withdrawals might not be enough to cover your tax liability.
– The default withholding for individual payments is 20% which, in the event of a large single payment will not be enough.
– The default withholding for installment payments initiated before 2023 is as if you were married and claiming three dependents – a sure recipe for not having enough withheld. If, however, you initiated your payments in 2023, the withholding will be a more realistic single with no dependents.
If you haven’t reviewed your withholding recently, or if you got a nasty surprise at tax time this past April, it’ll be to your advantage to review your withholding right now. If you find that you will owe a significant amount of money in April 2024, you can:
· Make an estimated tax payment by January 15, 2024 for the 4th quarter of 2023;
· Increase withholding in other sources of income such as your FERS annuity; or
· Have a large amount withheld from your Social Security or TSP for the month of December.
You can access the IRS tax withholding estimator at Tax Withholding Estimator | Internal Revenue Service (irs.gov).
WORDS TO LIVE BY: “Nobody made a greater mistake than he who did nothing because he could only do a little.”
– Edmund Burke.
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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