I retired this year and started drawing SS

[RJLisle]

I retired at the end of February this year, so I have income and withholding for the first 2 months. But when I retired I started drawing SS without any withholding because I wasn't sure at the time how much to withhold. So I believe that now I need to submit a W4 to start withholding going forward, but also catch-up somehow on the 3 months without withholding. What do I do?

[xmasbaby0]

Are you now receiving ONLY Social Security---or are you receiving any other income like a pension or taking money out of an IRA or 401k?   If you had tax withheld during the months when you worked, then you are likely fine unless there is some other income you are receiving that you have not mentioned here.    Investment income?  Rental income?  Etc etc.

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 2023 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 schedule: MN and VT.

The tax laws for 2024 will change——for  tax year 2024 Missouri and Nebraska will no longer tax SS

[KNDavis]

Hi RJLisle,

Congratulations on your retirement!

I agree that you'll want to have Federal taxes withheld from your Social Security benefits.  You can make that request by completing form W-4V and mailing or faxing it to the Social Security office near you.  Here's the link to the Social Security website with the instructions for how to request withholding and a link to Form W-4V.

Form W-4V gives you four options for Federal withholding:  7%, 10%, 12% or 22%.  

You may want to use a tax estimator to figure out how much total tax you need withheld.  Here is a link to the IRS Tax Withholding Estimator. 

Since you need to make up for 3 or 4 months' missed withholding, you have a couple options:

• You could choose a higher percent to withhold just for 2024, and submit a revised for for next year with the more appropriate percent. 
• Or you can estimate how much withholding would have been deducted from the first few Social Security checks and make an estimated payment directly to the IRS on their website (www.irs.gov/payments).  

Sincerely,

Kimberly, CPA for over 30 years

@RJLisle 

[RJLisle]

I am receiving another pension that has withholding. That pension plus my wife's and my SS are enough for us to live on comfortably since we have no debt. I have no other income, and I don't plan on working, nor drawing from my 401k until I am required to do so in a few years. I am past FRA, but only starting drawing SS this year.

[KimberW]

Thank you for the additional information in response to xmasbaby0's questions.

The follow-up reply from KNDavis contains the best options for you to adjust your withholding. First, figure out how much your taxable income will be using the calculators she linked to, then use that information to set a withholding level for the rest of 2024. Make sure to revisit this for the beginning of 2025.

[markcnewkirk]

I read this thread with some interest as I retired in 2024 and found myself in similar circumstances.  I downloaded and perused the instructions for FORM2210.  In that document under the Waiver of Penalty section I found the text excerpted below:

Waiver of Penalty

If you have an underpayment, all or part of the penalty for that underpayment will be waived if the IRS determines that:

• In 2023 or 2024, you retired after reaching age 62 or became disabled, and your underpayment was due to reasonable cause (and not willful neglect); or

This leads me to believe those finding themselves in an "under withheld" situation will be forgiven if they bring the fact that they retired to the attention of the IRS by amending page 1 of FORM2210 and some sort to explantory note to their returns.

Question 1: Is that true

Question 2: Are these important, from an underpayment penalty perspective, captured by the TurboTax software?  If not why not?

Question 3: Does TurboTax electronic filing support attachment of said explanatory form?  and if so how?

Mark C. Newkirk

[email address removed]

[MarilynG1]

Yes, there are several situations where an Underpayment Penalty will be waived.

No, the IRS is aware that many of these situations exist, and if they determine that you owe an underpayment penalty, they will send you a bill with their explanation.

No, TurboTax Efile doesn't support attachment of an explanatory statement in this case.  You would have to mail your return to attach such a statement.  You could delete Form  2210 from your return and Efile. 

From IRS Form 2210 Instructions:

"Use Form 2210 to see if you owe a penalty for underpaying your estimated tax. The IRS will generally figure your penalty for you and you should not file Form 2210. You can, however, use Form 2210 to figure your penalty if you wish to include the penalty on your return. There are some situations in which you must file Form 2210, such as to request a waiver."

Here's more info on Form 2210 and IRS Instructions for form 2210.

@markcnewkirk