The U.S. Internal Revenue Service hoisted a big red-flag warning to retirees earlier this month: take a look at how much income tax you are paying throughout 2018, because the amount could need an adjustment in the wake of the new federal tax law.
The Tax Cuts and Jobs Act of 2017 (TCJA), signed into law by President Donald Trump last December, made important changes to tax rates, brackets, deductions and exemptions that affect all taxpayers. Retirees need to pay special attention to income coming from tax-deferred retirement accounts, pensions and annuities. Higher-income retirees may also owe taxes on Social Security benefits.
The amount of total income tax you owe could be going up or down, depending on your personal circumstances.
Failing to pay the right amount through the year could subject you to a penalty next April when your federal income tax return is filed. The penalty is determined by multiplying an interest rate, determined by the IRS, by your underpaid amount; the current interest rate is 5 percent. Taxation of retirement income by states is all over the map (bit.ly/2MPajDB), but your state tax return also could be impacted.
The IRS issued a bulletin earlier this month urging retirees to do a check-up on amounts that are being paid in quarterly installments or withheld (bit.ly/2oWUbX4). Taxes are due throughout the year, either through quarterly estimated payments, or through withholding by pension plan sponsors or annuity providers. Taxes also are owed on Social Security.