The new tax law may have an unintended effect on retirees. The Internal Revenue Service (IRS) is warning retired seniors about potential underpayment.
How does this happen, and what should retirees do about it?
Check for underpayments
The Tax Cuts and Jobs Act of 2017 (TCJA) changed the tax brackets for federal tax guidelines. One of the side-effects of the TCJA is that tax-deferred pensions and retirement accounts are taxed at different rates. Your account may no longer be taxed at the right percentage for your situation.
The IRS is warning all retirees to check on their tax withholding, to make sure they are paying the right amount. Speak with a representative of your pension account if they withhold earnings. If you make quarterly payments, you may need to review the rate you are paying, compared to the new tax code.
Avoid expensive penalties
If someone is underpaying on a retirement account, the IRS assesses a repayment penalty. That penalty is decided by multiplying an IRS-appointed interest rate by the amount you owe. This can become expensive fast, without a retiree even knowing they owe the money. A retiree can face an unexpected (and costly) penalty on top of any owed tax returns.
Review tax payments
The best thing to do, according to the IRS, is to review your retirement accounts and social security payments. Make sure you are paying the correct amount. If you are underpaying, correct it as soon as possible. Create a repayment plan and implement it. The sooner you begin repayments, the less you need to pay in penalties and interest.
If you have any questions about tax law or how it affects your estate, a skilled attorney can help you navigate the new tax code.
No Comments
Leave a comment