In September 2018, the IRS issued a press release announcing to seniors that they need to check to make sure they are withholding enough income tax. Otherwise, it warned, they might get an unpleasant tax surprise next spring. This is due to the Tax Cuts and Jobs Act that Congress passed in December 2017. That Act brought many changes to the tax code. Some people wound up in different brackets. Some will owe more tax than they used to, while others will owe less next year. This is why retirees should check their withholdings as soon as possible.
New Resources From the IRS
In addition to alerting the public through a series of articles and press releases, the IRS is making it easier to know what to do by offering new tools to help calculate the potential changes for your next tax return. They have introduced a Paycheck Checkup campaign that makes it easy to verify some of the key components that determine how much you will have to pay in taxes. Also, they’ve created a Withholding Calculator to double check to see if you’re having enough withheld from your paychecks.
This tool is not only for those receiving paychecks. Retirees can also use the Withholding Calculator to check their income, whether from a pension or annuity payments. According to the directions of the Calculator, 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.”
Higher Pensions = More Tax Due
Another reason retirees need to look into whether they are having enough withheld from their income is because some pension payments are larger than expected this year. According to the Washington Post, these higher pension payments increase the likelihood that the recipient will owe more tax than they expect.
The Tax Cuts and Jobs Act created the biggest changes in our tax code in thirty years. There are many new details to be aware of. Taxes are calculated now in significantly different ways. If you’re feeling overwhelmed by all of these changes, reach out to one of our certified public accountants here at DCA. We’re happy to answer any of your tax season questions!