1099R federal income tax questions

[barbara157]

I retired this past summer and began collecting my pension in Sept.  When I entered my W2 my refund was substantial, but as soon as I added my 1099R income my refund was cut by two thirds.  What I don't understand is my 1099R had Federal taxes withdrawn - which I entered into box 4 of the Turbo Tax form for the 1099R data.  So why is this happening?

Thanks,

[Al_calc]

Withholdings are your payment plan to Uncle Sam.

Remember, a tax refund is just the tax overpayment from your prior year withholdings, once all the income/deductions/adjustments ect.. are taken into account at the end of the year.

If you're getting a refund, it sounds like your withholdings from your W2 and 1099R are sufficient to cover your taxes once your income (e.g. from a W2, interest, dividends, etc..) is included.

It may be worth adjusting your federal withholdings  (either with your employer or with the 1099R provider, or both) once or twice per year to make sure you're contributing the right amount through withholdings so you don't end up with either: 

1.  penalties at the end of the year for contributing too little,
2. an unnecessarily large refund.

The IRS has a pretty good withholdings calculator I do a in August and November each year:

https://www.irs.gov/individuals/tax-withholding-estimator

Why August and November?  Updating withholdings in August still leaves 4 full months for any changes to take effect while a smaller November adjustment allows you to set things up for the end of the calendar year and the start of the next year.

[ToddL99]

The most likely explanation for the drop in your refund is that the amount of tax withheld from your 1099-R payment was not sufficient to account for the tax rate on your combined income (W-2 and 1099-R). 

Tax was withheld from the W-2 based on your withholding elections for the W-2's income. 

Unless you direct the retirement plan administrator otherwise, they tend to withhold a set percentage from your payments (e.g. 10%, 15% or 20%). That method often results in insufficient tax withheld for your total income (W-2, retirement, dividend/interest).

[Al_calc]

Withholdings are your payment plan to Uncle Sam.

Remember, a tax refund is just the tax overpayment from your prior year withholdings, once all the income/deductions/adjustments ect.. are taken into account at the end of the year.

If you're getting a refund, it sounds like your withholdings from your W2 and 1099R are sufficient to cover your taxes once your income (e.g. from a W2, interest, dividends, etc..) is included.

It may be worth adjusting your federal withholdings (either with your employer or with the 1099R provider, or both) once or twice per year to make sure you're contributing the right amount through withholdings so you don't end up with either:

1. penalties at the end of the year for contributing too little,
2. an unnecessarily large refund.

The IRS has a pretty good withholdings calculator I do a in August and November each year:

https://www.irs.gov/individuals/tax-withholding-estimator

Why August and November? Updating withholdings in August still leaves 4 full months for any changes to take effect while a smaller November adjustment allows you to set things up for the end of the calendar year and the start of the next year.