Witholding question

[LAS1338]

It is time to "retire". I will be 62 in 6 months. I have decided to take an hourly job making much less than I have when working and to supplement my income, I will be taking my pension in monthly payments. I will also be taking SS starting mid next year and will likely pull a small amount from my IRA to deliver my planned budget. I have no idea what to put in for withholdings on the W-4P. I can certainly estimate my annual pay based on my hourly rate and some estimated number of annual hours but with it being an hourly job, that amount could go up or down depending on work needs.  Do I have to include estimated annual SS withdrawals in my "income"? What about estimated pull from the IRA? It is so confusing (filing single).

[VolvoGirl]

Be careful having wages when getting Social Security when you are under full retirement age.

There are 2 different things to know about social security. People get them mixed up all the time.

1. Your actual SS checks

If you are over full retirement age your actual ss checks won't be reduced. Otherwise they will actually reduce your payments if you make too much other income in the prior year.  See SS FAQ for working after retirement

https://www.ssa.gov/planners/retire/whileworking.html

2. Income Tax

For any age up to 85% of Social Security becomes taxable when ALL your other income plus 1/2 your social security reaches:

Married Filing Jointly: $32,000

Single or head of household: $25,000

Married Filing Separately: 0

[xmasbaby0]

TAX ON SOCIAL SECURITY

Up to 85% of your Social Security benefits can be taxable on your federal tax return.  There is no age limit for having to pay taxes on Social Security benefits if you have other sources of income along with the SS benefits.  When you have other income such as earnings from continuing to work, investment income, pensions, etc. up to 85% of your SS can be taxable. 

 What confuses people about this is that before you reach full retirement age, if you continue working while drawing SS, your benefits can be reduced if you earn over a certain limit. (For 2019 it was $17,640— for 2020 it was $18,240; for 2021 it was  $18,960.  For 2022 it was  $19,560  —  for 2023 $21,240)  For 2024, $22,320.

After full retirement age, no matter how much you continue to earn, your benefits are not reduced by your earnings; your employer will still have to withhold for Social Security and Medicare.  If you work as an independent contractor then you will pay self-employment tax for Social Security and Medicare.

To see how much of your Social Security was taxable, look at lines 6a and 6b of your 2022 Form 1040

https://ttlc.intuit.com/questions/1899144-is-my-social-security-income-taxable

https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable

You need to file a federal return if half your Social Security plus your other income is $25,000 when filing single or head of household, or $32,000 when filing married filing jointly, $0 if you are filing married filing separately.

Some additional information:  There are 11 states that tax Social Security—Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont  These states offer varying degrees of income exemptions, but two mirror the federal tax 

[Opus 17]

I think you need to assume that 85% of your SS benefit will be taxable.  If you have too much withheld, you will get a refund when you file your return.  

1. If you work after retirement and earn more than the threshold, your SS benefits will be reduced in the following year.  For 2023 the threshold is $21,240.  There will probably be an inflation adjustment to the threshold for 2024.

2. You will continue to pay social security and medicare tax on any wages earned, no matter what your age is.  That's just how it works.

3. If half your SS benefit plus all your other taxable income (includes wages, IRA withdrawals, pension, lottery, etc.) is more than $25,000, up to 85% of your SS benefit will be taxable (the exact amount depends on your other income and a formula). 

[LAS1338]

I am aware of the taxation on my SS. My income from working will be somewhere around $30k just above the threshold so only a % of my SS will be taxed at the higher rate. I've already met with my tax person so I know my blended effective tax rate. All I need to know is what needs to be called out on the W4-P. Is it only the income from working? I'm assuming I don't need to call out my SS amount and I am filling out the W4-P because I have a small amount coming from a pension.

[Opus 17]

Based on the instructions for the W-4P, you list your total expected income from your job or jobs on line 2(b)(i) and you list what you expect will be the taxable portion of social security, plus any other expected taxable income (interest, dividends, lottery prizes, etc.) on line 4a. 

This information will be used by the pension payer, in conjunction with tables and formulas provided by the IRS, to calculate the appropriate withholding.  If the pension is small and your other taxable income is modest, there might be little or no withholding, it depends on your overall situation.  But the form is designed so that you list all your income as instructed, and let the formulas do the work.