I'm new at collecting Social Security. I just found out the hard way that if you also have a pension and collect social security you not only will owe taxes on a portion of your Social Security but will also have to pay a penalty on top of it because they don't hold back federal taxes on your benefit each month. That's crazy anyway because now I have to pay tax on the tax they took out for 45 years.
Just think of it as paying taxes on that portion of those working year contributions which your employer paid. 😉😉
Don't worry, the taxes you pay on your Social Security benefit goes back into the SS Trust Fund to help keep it afloat and for you to keep getting your benefit; so think of it, at the time being, just a re-circulating of your money. 😉
@fffredis right (see the link he gave to IRS Tax Topic 306 ) - the IRS does gives some special circumstances on the penalty, if you qualify.
You retired (after reaching age 62) or became disabled during the tax year or in the preceding tax year for which you should have made estimated payments, and the underpayment was due to reasonable cause and not willful neglect.
" I didn't know" seems to be the great American go-to reason.
Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.
Welcome again to Retirement - now what else might have been overlooked??? Don't want you to have to learn anything else the hard-way - that's a bummer.
Maybe you can plead for no penalty on this time around? I did that last year as I didn't have enough paid in estimated taxes to cover the full amount. I wasn't required to pay a penalty (this was all done through TurboTax on-line tax software).
I used TurboTax and was saved right at the end because after doing all my federal taxes and telling me I had to pay a $93. penalty it asked me if I received a stimulus check last year. I did not so that took me from owing over 3 grand to getting $295. back and the penalty went away. They do take federal taxes out of my pension each month but it doesn't cover what they don't take from me and my wife's Social Security. I'll just have to pre pay this year so I'm not in the same boat next year. It's like the government saying hey you worked 40 years and paid into Social Security all that time so this is what we'll give you at 66 years old...but not really we need some of it back.