Avoid Hefty Social Security Payment at Tax Time by Paying Ahead – Here’s How
If you plan on retiring soon, now is the time to think about 2022 federal income taxes, as taxation of retirement income is different from the taxation of income derived from working. These changes are primarily due to how taxes are withheld on retirement income, according to Fedweek.
To avoid ending up paying a lot of federal income taxes at filing time, with some planning, it’s more beneficial to pay your taxes over the course of the tax year.
Fedweek says that regarding federal annuity (CSRS or FERS), you likely filled out a W-4P with your retirement papers and now taxes are being withheld from your monthly payments.
“You probably based this withholding on the last W-4 you filed while still an employee and it will most likely cover all taxes due from your CSRS or FERS annuity. There’s little problem here. Where it gets problematic is when we get to your Social Security and TSP withholding,” according to Fedweek.
The key to avoiding a tax surprise, particularly in your first year of retirement, is to pay the income tax on your Social Security as you go, Fedweek recommends.
Here’s what you can do, per Fedweek:
- Ask Social Security to withhold from your monthly payments.
- Make quarterly estimated tax payments. These payments, due on April 15, June 15, September 15 and January 15, require you to remember to set aside the money for the payment and remember to actually send it in.
- Increase the amount of withholding by completing the withholding portion of your Thrift Savings Plan(TSP) withdrawal form. If you’ve already begun distributions and want to have more withheld, you can file a W-4P.
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