How to Calculate Retirement Withholding Taxes

Effective retirement planning will always mean a brighter financial future.
Image Credit: Design Pics/Design Pics/Getty Images

Retirement income can include a number of sources such as Social Security benefits, insurance contracts, annuities, retirement or profit-sharing plans, and IRAs. Most people believe there is little option when it comes to choosing how they are taxed once they start contributing to a specified retirement plan. But that is not the case.

Options for Withholding Taxes from Retirement Income

To withhold or not withhold, that is the question.
Image Credit: Thomas Northcut/Photodisc/Getty Images

Taxpayers do not always realize they can request federal income tax be withheld from their retirement income by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments. This form is sent to the payer. In most cases, the payer is the company you worked for before retirement. To requesting withholding from Social Security benefits, you must complete Form W-4V, Voluntary Withholding Request. This form is sent to the Social Security Administration. Both forms can be found by going to the IRS website at and typing the name of the form in the search box.

Form W-4P, Withholding Certificate for Pension or Annuity Payments

Taxpayers use Form W-4P to inform payers how much federal income tax, if any, they want withheld from payments. Complete the "Personal Allowances Worksheet" portion, before moving on to Lines 1 through 3 of the form. Continue on to the "Deductions and Adjustments Worksheet" only if you plan to provide itemized deductions or claim certain credits or adjustments to income. Complete the "Multiple Pensions/ More-Than-One-Income Worksheet" only if you are directed there from section G of the "Personal Allowances Worksheet." Generally speaking, federal income tax withholding applies to the taxable part of payments made from stock bonuses, pensions, certain deferred compensation plans, profit-sharing and annuities; from individual retirement accounts; and from commercial annuities.

How to Calculate Withholding from a Pension or Annuity

To calculate a withholding from a periodic payment of a pension or annuity, follow the same steps you would use to figure out withholding from wages. To indicate you would like federal income tax withheld, designate the number of withholding allowances on line 2 of Form W-4P and check the box that correctly indicates your marital status. You can choose not to have federal income tax withheld from payments by using line 1 of Form W-4P.

Form W-4V, Voluntary Withholding Request

Taxpayers may find it more convenient to voluntarily have federal income tax withheld, rather than making quarterly estimated tax payments. Form W-4V may be used to achieve this goal if you receive the following retirement-related government payments: Social Security benefits or Social Security equivalent Tier 1 railroad retirement benefits. Send a completed Form W-4V to your local Social Security Administration office if withholding on Social Security benefits. Fill in the appropriate personal information where requested. Line 6 will provide you an option to indicate which federal income tax you would like withheld and the amount. You are then asked to sign and date the form.

How to Receive Tax Help

For a more detailed explanation of these forms and any additional questions you may have, you are encouraged to visit the Internal Revenue Service Help & Resources page (see Resources). If your tax issue cannot be handled online or by phone, and you want face-to-face tax assistance, taxpayers always have the option of visiting the IRS Taxpayer Assistance Centers.

references & resources