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Every retiree should make this tax move right now, according to the IRS

The IRS has a message for retirees: make sure you’re paying enough federal income tax. The Tax Cuts and Jobs Act of last December changed the income tax calculations for most filers, and employees aren’t the only ones who need to double check they’re withholding the right amount.

The GOP tax bill lowered the top individual rate to 37% from 39.6%, and the income brackets dropped slightly -– by about 3%, says Chris Baker, a certified financial planner at Oaktree Financial Advisors in Carmel, Indiana. This means that on average most retirees will likely see a decrease in tax liability and owe slightly less, although it varies by individual circumstances, he says.

Retirees who receive monthly pension income or annuity checks may well need to increase or lower the amount of taxes they pay. While most retirees prefer withholding taxes from each paycheck to give Uncle Sam his due, those who choose to receive the full amount in each check and then make estimated payments to the IRS must do so four times a year by the quarterly deadlines. The third quarter deadline was Sept. 17, and the next is Jan. 15, 2019.

Withholding too much from each check could result in an outsized refund while withholding too little could mean you owe the IRS next spring. “Make sure you don’t have a large balance due because it’s possible you could be penalized for underpaying your estimated tax,” says April Walker, lead manager for tax practice and ethics at the American Institute of CPAs.

Retirees with Pension Income should do a Paycheck Checkup ASAP

Retirees should do a Paycheck Checkup to make sure they are paying  enough tax during the year by using the Withholding Calculator, available on IRS.gov. The Tax Cuts and Jobs Act, enacted in December 2017, changed the way tax is calculated for most taxpayers, including retirees.

Because of this law change, retirees who receive a monthly pension or annuity check may need to raise or lower the amount of tax they pay in during the year. The easiest way to do that is to use the Withholding Calculator or readPublication 505, Tax Withholding and Estimated Tax. Though primarily designed for employees who receive wages, this online tool can also help those who receive pension or annuity payments on a regular schedule, usually monthly or quarterly.

IRS launches new easy-to-use web pages to help all taxpayers understand tax reform

 

With an updated tax reform section and frequent updates, the IRS website should be the first stop for taxpayers looking for information about how tax reform legislation – the Tax Cuts and Jobs Act – affects their taxes. Here are some facts about these new easy-to-read, easy-to-use pages and what taxpayers can find on them:

Taxpayers scramble as proposed IRS rule on local taxes wrecks workaround strategy

The clock is ticking for taxpayers who want to contribute to state tax credit programs and nab a charitable deduction to boot on their federal return.

The IRS and Treasury's newly released proposed regulations block blue state attempts to bypass the new $10,000 limit on state and local tax deductions, also known as SALT.

This limit was imposed by the Tax Cuts and Jobs Act, an overhaul of the tax code that was passed last year.

Though the new guidance from Treasury and the IRS is a proposal at this point, it has an effective date of Aug. 27 and is intended to apply to transactions made after then.

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