What's the story on tax returns this year?

[TracyofCotuit]

I'm due to have my taxes done next week by an AARP volunteer, (what a blessing these people are), and I'm curious if I'm in for some horrific tax due. I keep hearing that refunds are smaller, and that people who never owed before this year, owe, but none of the people talking are retired.

So, what say you retired people? This will be my first experience as a fully retired person for one year, and I'm hoping it won't be a terrible experience.

Thanks in advance for any info!

Tracy

[lenl825248]

I'm 74 yrs old and retired. Had the same income in 2018 as i did in 2017 and paid about $1400.00 less in Federal Income tax. So Thank you Donald Trump for the new tax changes.

[easyed598]

Lenl   wrote-I'm 74 yrs old and retired. Had the same income in 2018 as i did in 2017 and paid about $1400.00 less in Federal Income tax. So Thank you Donald Trump for the new tax changes.-------------------------------------------------------------------------------------------------------------------------------------------------Had about a $1000.00 increase in income but paid $200.00 less in income tax than in 2017.    I think  most of those complaining about getting less in refund are people who received more on their regular pay during the course of the year. 

[2Papa]

I wish I was a 1%er, then I wouldn’t have to pay or worry about taxes!

[JimMorgan]

I've been retired for about 20 years and YES I did have to pay taxes for the first time this year. I live in California and we have higher local taxes and higher mortgage interest that people in other parts of the country.

[GailL1]

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@JimMorgan wrote:
I've been retired for about 20 years and YES I did have to pay taxes for the first time this year. I live in California and we have higher local taxes and higher mortgage interest that people in other parts of the country.

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I am sure that your property taxes and state taxes are high in California.  States differ.  Just be glad that the Feds let any of them be deductible at all.  There are many taxes that aren't deductible at all. 

Mortgage interest rate - is based on your own specifics - credit worthiness, down payment when last you bought or refinanced your home and the prevailing rate at the time that you got the mortgage- the whatever interest amount is based on the price of your home which is financed with the mortgage.

The later (mortgage interest) you can control directly - refinance to a lower rate or pay down the mortgage. 

To a certain extent your property taxes and your state taxes are also controlled by you since those are both under more localized control in your locality and state of which you are a resident. 

[roachme]

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@GailL1 wrote:I am sure that your property taxes and state taxes are high in California.

Actually, Gail, property taxes in California are typically lower than in most other states.  By law, house property taxes are limited to 1% of the purchase price of the home minus $7000.  So tax on a $1 Million purchase price home is $9,930 per year to start and increase by the lesser of the CPI-W inflation rate or 2% per year of the previous year tax.  So a $1 Million house purchased last year would be $10,129 for this year.  That keeps it comparatively low to other states.  Example, a house purchased in 1983 for $100,000 had property taxes of $993, and today when the house is worth $600,000 or more, the tax for that original purchaser is now about $1500.  If they sell the house, the new owner will pay $5930 or more in property taxes.

Where Californians get nailed is on state income taxes.  The 9.3% marginal tax rate kicks in at taxable income over $56,085/$112,170 single/married.  So a couple doesn't have to make much, by California standards, to pay a lot in state income tax.  It's a 6% marginal rate for a $32K/$64K taxable income.  The highest is 12.3% plus an extra 1% special tax for those over $573K single.

Although not retired last year, my fed taxes went down by 18% for the same income level as 2017.  My 2018 withholding (same amount as 2017) was within $1000 of my 2018 taxes due.  I'm afraid to see what my state taxes look like.  Yes, I'm in California.

[JimMorgan]

I'm retired and in previous years my deductions and exemptions (between $28,000 to $30,000) kept me from paying any federal or state income taxes.  This year the $26,000 standard deduction is supposed to consider both personal deductions and exemptions.  So for the first time in many years, I now have to pay both fed and state income taxes. Was told by a tax assistant that the new laws don't really hurt anyone as they haven't really changed.  For an old retired enrolled agent for the IRS - don't feed me an balony!

[joejcpa]

Since most retired people would be making estimated tax payments rather than tax withholding, they should have been making payments that would amounted to their previous years total tax liability.  Assuming they did not have substantial deductible taxes in previous years, they would most likely have a lower tax liability in the current year and would therefore see a lower tax liability and probable refund.  Those individuals who used itemized deductions in the past with exceptionally high deductible taxes that are now limited to $10,000 in total and with other medical and/or charitable deductions could actually see a higher tax liability this year since the standard deduction and over 65 deductions could be less tax deductions that previous years.   

[bgsdaughter]

I am retired, and I always have to pay taxes (I do have money taken off from my pension, and annuities), but apparently not enough, but I feel I need the money I do get  (covers rent increases etc).  This year I had a change on one annuity which meant I had to get a check from that company as I was moving the money to a new one.  I had federal tax taken off of the earnings.  I pretty much wound up paying the same amount as previously, not much more. I don't live on a large sum of money because I am still pretty young and need to keep my investments as who knows how long I may still live.  I don't live high but can still enjoy eating out and buying books.

[easyed598]

 tracey wrote-I keep hearing that refunds are smaller, and that people who never owed before this year, owe, but none of the people talking are retired.--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------I`m retired and I had less money withheld during the course of the year and I also got a bigger refund than in 2017. New report out this morning says that refunds are higher than last year by 1.3 %. It seems that initial reporting on this was wrong. Keep in mind that many companies made adjustments in withholding taxes resulting that more people kept more of their money each pay period. This is a good thing -why let the government keep your money for up to a year and not paying you any interests just so you can get a refund?

[CarolH325608]

What is the status of the House Bill to raise the Social Security taxable benefits threshold for single people from $25,000 to $75,000 plus adding a cost-of-living adjustment? In 1983, when the Reagan administration passed legislation to start taxing Social Security benefits, they did not add a cost-of-living adjustment; therefore, the current stagnant $25,000 taxable benefit threshold should realistically now be $75,000. I understand that a House Bill previously failed in that the Far Left attached all sorts of free stuff for people who did not pay into the system. There was supposed to have been a revised House Bill put together afterwards removing this free stuff for people who did not earn benefits like those of us who paid into the system for all of our working life.

[Russ21]

You've already submitted this.  Is your bias getting the better of you?

[GailL1]

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@CarolH325608 wrote:

What is the status of the House Bill to raise the Social Security taxable benefits threshold for single people from $25,000 to $75,000 plus adding a cost-of-living adjustment? In 1983, when the Reagan administration passed legislation to start taxing Social Security benefits, they did not add a cost-of-living adjustment; therefore, the current stagnant $25,000 taxable benefit threshold should realistically now be $75,000. I understand that a House Bill previously failed in that the Far Left attached all sorts of free stuff for people who did not pay into the system. There was supposed to have been a revised House Bill put together afterwards removing this free stuff for people who did not earn benefits like those of us who paid into the system for all of our working life.

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The John Larson - D/ Conn - (Social Security 2100 Act) is in Committee now -

It raises the income limits on taxes on SS benefits -

Section 104. Replace the current-law thresholds for federal income taxation of OASDI benefits with a single set of thresholds at $50,000 for single filers and $100,000 for joint filersfor taxation of up to 85 percent of OASDI benefits, effective for tax year 2020.

But these thresholds would be fixed and not indexed to price inflation or average wage increase.  Since these taxes go into the SS / Medicare Trust Funds, it is done this way for maximum benefit (and needed income) for the SS/Medicare Trust Funds.

It is H.R. 860 (House) and S. 269 (Senate)

Senate:  Gov Track   S.269

House:  Gov Track   H.R. 860

Personally, I am a Conservative and this is good legislation.  It covers a lot but will make the SS system solvent for MORE than the forecast period of 75 years.

Here is the Social Security Actuary Report on all of its provisions and forecasted outcome.

https://www.ssa.gov/OACT/solvency/LarsonBlumenthalVanHollen_20190130.pdf

[fffred]

Sorry for the length, but please bear with me. This is simple. And it may give some insight into what all the hullaballoo is all about. (disclaimer: I am not a tax expert except as an informed payer of taxes)

There are two separate issues to consider (and I'm sure you're aware of these, but just to clarify so that all readers are on the same page...believe it or not, some people don't understand these points):

(1) what your Federal income tax bill actually is. For example, line 15 on form 1040 (and equivalent on 1040A and 1040EZ, etc). Regardless of how it's paid, this is your tax due. This may have been pre-paid in full (or more) or in part through payroll income tax withholding, quarterly estimated payments, etc.

(2) then there's your tax "refund". Many people pay more in withholding on their jobs, etc, than what they will actually owe in income tax. This may be by intent or not. Some people like the forced savings of large withholding, others strive to have their withholding pretty well match their tax liability. Many people get their tax refund and get excited! They will go spend it on a trip or whatever.

Now what has happened with the 2018 income taxes is this:

(1) in most, but not all, cases people may have a lower tax liability. There are some losers on this though. Many itemized deductions have been capped or eliminated, and standard deduction has been increased. Personal exemptions no longer exist. If someone in the past had itemized a large amount for deductible mortgage interest, property taxes, and other taxes, etc, well, now they may not be able to itemize and they'll be taking the (now larger) standard deduction, with the result that their taxable income is now higher.

Conclusion for (1): most people will pay less tax but some people will end up paying more.

(2) The IRS tinkered with the withholding tables (for payroll deductions, not applicable to retirees) and in some cases workers may not have sufficient withholding to cover their taxes and they may owe additional money instead of getting a refund. Even if sufficient tax was withheld then due to the lower tax liability they may end up getting a smaller refund than they have in the past.

The IRS and numerous publications hammered on this all year long (2018) that workers should check their withholding to ensure that it was sufficient. No one should be blaming the government or IRS if they hadn't done this.

Retirees who made their quarterly estimated tax payments are *probably* okay (just guessing).

Conclusion for (2): so, the likelihood of you getting a refund, or owing additional cash, will depend on how good you "guessed" at your 2018 tax liability with your payments throughout the year.

I'm going to hazard a guess that a new retiree (for the full year) and who made proper quarterly estim tax payments will likely get a small refund or have a small payment due. It won't be the sort of catastrophe you've heard about.