Federal tax so high after retirement

[227562JOB]

Both my husband and I retired in 2019, our income should have come down so that our taxes should have decreased too, but instead the 2019 tax is higher than we have ever paid. Why?

[DavidD66]

When you say the 2019 tax is higher than you have ever paid, do you mean the amount of total tax you are paying for 2019, or the additional amount you owe after preparing your tax returns?

[227562JOB]

I am talking about the tax DUE on federal return after completing both federal and 2 states tax returns. The state returns look reasonable but the federal seems too high.

[ThomasM125]

Typically what happens when you retire is you start receiving social security and retirement benefits but don't have the proper taxes withheld from those distributions. So, your tax may be less than when you were working, but since you have less tax withheld to pay the tax due, you come up short at tax time.

When you work, you complete a W-4 form that allows for the correct amount of tax to be withheld from your pay. You can complete a similar form (W-4P)  for pension plan distributions or form W-4V for social security distributions, to help insure that you have the proper tax withheld from your retirement plan distributions.

Also, you could take your tax due and divide it by twelve to see how much extra you have to pay in each month so you don't end up owing at the end of the year, and have that much extra withheld from your pension income each month.

[Edited 3/10/20 at 3:07 PM PST]

[227562JOB]

I see what you are saying about not having enough federal withholding but I still am nervous that I did something wrong. Can I try to do the whole thing again to see if the results are the same? Or do you think this unnecessary?

[dmertz]

The equivalent to Form W-4 for pensions and annuities is Form W-4P and for Social Security is Form W-4V.

[VictoriaD75]

We cannot see your return. However, one way to feel confident is to compare your previous tax return with the current year. The format of the 1040 has changed from 2018 to 2019, so you cannot compare line numbers. Be sure to review by line description. Some important lines to consider are total income, taxable income, tax due, total payments, and refund or balance due. This will give you an idea of whether or not you may have left out anything before you file.

In particular, look at your tax liability. This will be line 16 on the Form 1040 in 2019 and line 15 in 2018. This is your calculated tax liability based on income. The refund/balance due is just the difference between this number and the withholding. If your tax liability is relatively unchanged, adjust your withholding to cover the difference and avoid a balance due in 2020. Keep in mind, the tax code changed for tax year 2018. Comparing years prior to 2018 may show significant differences.

Also, take into consideration any job changes, life changes (marriage, new home, dependents, etc.) that may affect your return between the two years. Consider whether or not you have included all sources of income on your return, such as W2's, interest, dividends, or any income from self-employment. Review the Deductions & Credits section of TurboTax to make sure you have taken advantage of all potential tax breaks. Finally, be sure to run the review on the return to look for any potential errors.

[fanfare]

Always print a copy of your completed tax return for your records, and review it carefully before e-Filing.
You will need it if you are audited by the IRS, or to amend because a TurboTax update changes your return.

After review, you should understand better your income tax situation.