IRS Unveils Tool for Determining Withholding on Pension Payments

The IRS has unveiled an electronic tool it intends to provide a more user-friendly way to check withholding, including withholding on pension payments.

The Tax Withholding Estimator is a mobile-friendly estimator that replaces the Withholding Calculator. The IRS intends the new tool to help employees and self-employed individuals, and to assist retirees in determining the correct withholding on pension payments. It includes features specially tailored to the needs of retirees who are receiving pension payments and Social Security benefits.

The estimator uses a six-step question-and-answer format using information such as marital or filing status, income, withholding, adjustments, deductions and credits.

Retirees

A retiree can enter into the estimator any pension income or Social Security benefits they or their spouse receive; the tool then automatically calculates the taxable portion and incorporates it into an overall estimate of their projected tax liability and withholding for the year. If a withholding change is needed, the retiree can choose a tax due of close to zero or a refund amount. The estimator will then link to Form W-4P, Withholding Certificate for Pension or Annuity Payments, and give the retiree a specific withholding recommendation based on the option chosen

Broader Enhancements

Other enhancements to the Tax Withholding Estimator include:

• plain language;
• mobile-friendly design;
• a new progress tracker to help taxpayers know how much more information they need to enter;
• the ability to go back and forth through the steps, correct previous entries and skip questions that don’t apply;
• tips and links to help users quickly determine if they qualify for various tax credits and deductions; and
• automatic calculation of taxes on self-employment income.

Instructional Webinar

The IRS is holding a free two-hour webinar on the new estimator on Thursday, Sept. 19 at 2:00 p.m. Eastern time. It will feature step-by-step instructions on how to use the tool, as well as a live question-and-answer session. Interested parties can sign up for the webinar here.