Retirees can now determine the correct amount of tax to be taken out of their pension payments by using the Tax Withholding Estimator, which replaced the Withholding Calculator on IRS.gov in August.
The estimator is designed to meet the needs of retirees who receive pension payments and Social Security benefits. It enables them, as well as wage-earners and self-employed individuals, to check their withholding.
The estimator employs a six-step question-and-answer format using information such as marital or filing status, income, withholding, adjustments, deductions and credits.
Retirees can enter any pension income or Social Security benefits they or their spouse receive. The tool automatically calculates the taxable portion and incorporates this into an overall estimate of their projected tax liability and withholding for the year.
If a withholding change is needed, the retiree can choose a tax due of close to zero or a refund amount. The estimator will then link to Form W-4P, Withholding Certificate for Pension or Annuity Payments, and give the retiree a specific withholding recommendation based on the option chosen. It will also give instructions on how to fill in each line of the form.
The Internal Revenue Service will hold a free two-hour webinar on Thursday, Sept. 19 at 2 p.m. Eastern time, featuring step-by-step instructions on how to use the new estimator and a live question-and-answer session.
