Pension Withholding and Estimated Tax Payments
Some taxpayers are not aware that they can request federal income tax to be withheld from their retirement income by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments. Form W-4P is sent to the payer. Also, Form W-4V, Voluntary Withholding Request, is used to request withholding from social security benefits. Form W-4V is sent to the Social Security Administration.
If taxpayers owe $1,000 or more on the tax return, you should discuss their withholding and estimated tax options with them.
A taxpayer who chooses not to have tax withheld may have to pay estimated tax each quarter. Failure to have enough federal income tax paid in throughout the year can result in an estimated tax penalty. Also, it can result in a large amount of tax due when the return is filed. Form 1040-ES, Estimated Tax for Individuals, is used to calculate the estimated quarterly payment and provides vouchers with which to remit the payments.
The Concluding the Interview and Refund and Amount of Tax Owed lessons cover more information about when taxpayers should revise their withholding. Also refer to Publication 17, Withholding, Form W-4, or Publication 505, Tax Withholding and Estimated Tax. For additional help, refer taxpayers to the "Withholding Calculator" on www.irs.gov.