Retirement

[BHall87]

My husband and I are both retiring in the third quarter of this year. We have to fill out a W4 for our retirement income. How do we know what to put on the form if we want the smallest amount of taxes taken out without having to pay a penalty at tax time? We don't mind paying some taxes when filing, but don't want to pay a penalty.

[JBedford]

Hi, @BHall87 , great question! So, the first thing to determine is the minimum amount you must pay in withholding to avoid a penalty. The IRS offers a couple of ways to determine this. According to the IRS: 

"You may avoid the Underpayment of Estimated Tax by Individuals Penalty if:

• Your filed tax return shows you owe less than $1,000 or
• You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less."

Additionally, our free W-4 Calculator might be helpful as a starting point in your calculations. Please let me know if this is helpful! 

[BHall87]

Thank you, that does help. Can you also tell me what effect raising or lowering the amount of other income put on line 4(a) has on my withholding amount?

[JBedford]

Yes! Raising that amount will increase your withholding, and lowering it will decrease it.