Publication 4190 (Rev. 5 2015) P4190
User Manual: 4190
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Tax Guide for
Frequently Asked Questions (FAQs)
This brochure is intended for individuals who recently retired or have
retirement plans in their near future
Tax Beneﬁts and Credits
A series of informational publications designed to educate
taxpayers about the tax impact of signiﬁcant life events.
WHAT DIFFERENCES ARE THERE IN
REPORTING MY RETIREMENT INCOME AND MY
INCOME DURING MY WORK CAREER?
When you received your Form W-2 prior to retirement, you reported your
wages on an individual income tax return, such as Form 1040. You also may
have received self-employment income on Form 1099-MISC, Miscellaneous
Income, if you were a contractor/subcontractor or if you performed independent
projects or services. You reported your income by attaching a Schedule C
or C-EZ to your Form 1040 and your self-employment tax on Schedule SE.
After you formally retire, you would do the same if you continue to receive
these types of income.
When retired, you may receive a Form SSA-1099 for social security beneﬁts
and/or a Form 1099-R for pension income. You will include these types of
retirement income on your Form 1040, in addition to any other income you
may have received during the tax year.
WHAT TYPES OF INCOME ARE TAXABLE?
The types of income which are taxable include, but are not limited to: military
retirement pay, all or part of pensions and annuities, all or part of Individual
Retirement Accounts (IRA), unemployment compensation, gambling income,
bonuses and awards for outstanding work, alimony or prizes. A portion of
your social security beneﬁts may be taxable based on your other income and
For additional information see Publication 525.
WHAT TYPES OF INCOME ARE NON-TAXABLE?
Some income is not subject to tax. A few examples are veteran’s beneﬁts,
disability pay for certain military or government related incidents, worker’s
compensation, and cash rebates from a dealer or manufacturer of an item
For additional information see Publication 525.
WHY IS MY PENSION INCOME TAXED?
Your pension could be fully or partially taxable depending on how the money
was put into the pension plan. If all the money was contributed by the employer
or the money was not taxed before going into the plan, it would be taxable.
When your contribution to the plan is from already-taxed dollars, that part
is not taxed, but must be recovered over your life expectancy. There are
worksheets in the instruction books for versions of Form 1040, including
Form 1040 A.
For additional information see Publication 575 or 915.
TAX WITHHOLDING AND ESTIMATED TAX
Our tax law provides for a pay-as-you-go system which requires taxes to be paid
on income as it is received. There are two ways which taxes are typically paid:
l Tax Withholding – You can request federal tax be withheld from your
pension, social security, unemployment compensation, etc., by submitting
the appropriate following form to the payer of the income:
»Form W-4 for wages and military retirement pay
»Form W-4P for pensions and annuities
»Form W-4V for social security, unemployment compensation, and
railroad retirement income
To ensure you do not have too much or too little income tax withheld from
your pay, use the search engine on www.irs.gov and input the word
“calculator”. Click on the “IRS Withholding Calculator” link and ﬁll in the
information that applies to you. You may use the results of this program to
wcomplete the Form W-4.
l Estimated Tax Payment – If you have not paid enough federal tax through
withholding, you should make estimated tax payments to the Internal
Revenue Service (IRS). This can be done by completing a quarterly
payment voucher (Form 1040 ES) and mailing it to the IRS.
NOTE: If you do not make sufﬁcient and timely federal tax payments, you
could incur an estimated tax penalty.
To calculate your estimated tax payments, you can use the worksheet with
Form 1040 ES. Estimated tax payments are due each year on April 15th, June
15th, September 15th, and January 15th of the following year.
Example: John realizes that selling his mutual funds in December resulted in
a large gain. He can estimate the effect of that gain and pay the amount by
January 15th, to avoid a penalty.
For additional information see Publication 505.
RETIREE QUESTIONS AND ANSWERS:
Q I am retired and receive social security, but I have now taken a part
time job. Why are they taking social security taxes out of my pay?
A The Federal Insurance Contribution Act, or FICA, provides for a Federal
System of old-age, survivors, disability, and hospital insurance. The
old-age, survivors, and disability insurance part is ﬁnanced by the social
security tax. Generally, employee wages are subject to social security
and Medicare taxes regardless of the employee’s age or whether he or
she is receiving social security beneﬁts.
Q How do I determine how much of my social security is taxable?
A Compare the base amount found in Publication 915, Social Security
and Equivalent Railroad Retirement Beneﬁts, to the total of one-half of
your social security beneﬁts plus all of your other income (including tax-
exempt income). If the base amount exceeds your income computation,
then your social security is non-taxable. For the most complete
calculation, you should use the worksheets found in Publication 915 or
the instruction books for the 1040 series.
Q How will I know how much of my pension is taxable?
A Your pension will be reported on a Form 1099R. Form 1099R will show
you how much you contributed to the plan and how much tax was
withheld. For new retirees, you will generally use the “simpliﬁed method”
to compute the taxable portion of your pension. (See Publication 575,
Pension and Annuity Income). Generally, your contributions to the plan
Publication 4190 (Rev. 5-2015) Catalog Number 36562Z Department of the Treasury Internal Revenue Service www.irs.gov
are not taxable as long as they were subject to taxation when they were
deposited to the plan.
Q What if I take my pension out in lump-sum payment?
A If you withdraw the full amount in your pension account, part or all will
be taxable in the year received. You may want to consider rolling it over
into another pension plan or a traditional IRA to avoid paying a large
amount of tax in one year.
NOTE: Before withdrawing any funds from a retirement account
(IRA, 401-K, Thrift Savings, etc.), consult with a tax professional to
understand potential tax consequences.
Q I am a military retiree. Where can I go to change my withholding?
A There are two ways to change your withholding. You can call the Retiree
Pay customer service number at Defense Finance and Accounting
Service (DFAS) at 1-800-321-1080. Or, you can make changes online
via DFAS’s myPay secure web-based pay management system. The
myPay system lets active duty military, National Guard and Reserve
members, some federal government civilian employees, and military
retirees and annuitants quickly change pay information like federal
and state withholding. If you are a myPay account holder, log in
at https://mypay.dfas.mil. If you want to set up a new account or
need help with your existing account, call the myPay customer service
center at 1- 877-363-3677.
HEALTH CARE LAW QUESTIONS & ANSWERS
Important Note about Health Insurance Coverage: The individual shared
responsibility provision requires that each individual have qualifying health
care coverage for each month, qualify for a coverage exemption, or make a
payment when ﬁling a federal income tax return. Find out more about tax-
related provisions of the health care law at IRS.gov/aca.
Q I’m over 65 and Medicare Part A is my primary health insurance
coverage. Do I have qualifying health care coverage under the
health care law?
A Yes. Medicare Part A is qualifying health care coverage under the health
care law. Medicare Part C, also known as Medicare Advantage, is also
qualifying coverage. You do not need to enroll in Medicare Part B to
satisfy the health care law.
Q I’m retired and have retiree health beneﬁts from my former
employer. Do I have qualifying health care coverage under the
health care law?
A Yes. If you have retiree health beneﬁts, that’s qualifying health care
coverage under the health care law. However, if you voluntarily drop
your retiree coverage, you won’t qualify for a Special Enrollment Period
to enroll in a new Health Insurance Marketplace plan and you will have
to wait until the next Open Enrollment period to enroll in coverage
through the Marketplace. And, if you don’t have qualifying coverage or
a coverage exemption, you will make an individual shared responsibility
payment when you ﬁle your tax return.
Q I’m retired and I don’t have health care coverage. I also don’t
qualify for Medicare. Will I need to make an individual shared
responsibility payment when I ﬁle my tax return?
A The individual shared responsibility provision requires that each
individual have qualifying health care coverage for each month, qualify
for a coverage exemption, or make a payment when ﬁling a federal
income tax return.
If you retire before you’re 65 and don’t have health care coverage, ﬁnd out
if you qualify for Medicaid or a Special Enrollment Period for coverage
through the Marketplace. If you apply through the Marketplace, you
may be able to get a premium tax credit and lower out-of-pocket costs.
Go to HealthCare.gov for information.
All the forms and publications mentioned in this publication can be found on
the Internal Revenue Service Internet site (www.irs. gov).
For a free paper copy of any listed form or publication, please call 1-800-829-
3676 (1- 800-TAX-FORM).
For additional questions about your tax responsibilities, you can call
Publications that may be of assistance:
• Publication 505, Tax Withholding and Estimated Tax
• Publication 525, Taxable and Non-taxable Income
• Publication 575, Pension and Annuity Income
• Publication 915, Social Security and Equivalent Railroad Retirement
• Publication 501, Exemptions, Standard Deduction, and Filing Information
• Publication 554, Older Americans’ Tax Guide
• Publication 560, Retirement Plans for Small Business
• Publication 721, Tax Guide to U.S. Civil Service Retirement Beneﬁts
• Publication 939, General Rule for Pensions and Annuities
• Form 1040, U. S. Individual Income Tax Return
• Form 1040A, U. S. Individual Income Tax Return
• Form 1040-ES, Estimated Tax for Individuals
• Schedule C, Proﬁt or Loss From Business
• Schedule C-EZ, Net Proﬁt From Business
• Schedule SE, Self-Employment Tax
FREE TAX RETURN ASSISTANCE
Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly
(TCE) Sites offer free tax return preparation to individuals having low to
moderate income. To ﬁnd free tax help near you, call IRS at 1-800-829-1040
or AARP TaxAide at 1-888-227-7669.
Tax Guide for
Frequently Asked Questions (FAQs) (continued...)