2016 promises to be a year during which state and federal income taxes are not going to stay constant. If you are planning to retire during this year, then there are some tax traps for you to avoid. If you plan well enough then you can easily avoid them. All the three retirement income sources can cause you troubles in this regard. Let’s take a look at each of the three:
Retiring in 2016 – Tax traps to avoid:
When you are filling the forms for your retirement application, you will get your hands on a W4-P among all the paperwork. You need to stay calm, put in the withholding level that you want to and you are good to go. If you are liable to get the FERS pension and are retiring before 62, your W4-P will also encompass the payments that the Special Retirement supplement guarantees for employees.
Once again, things are not that difficult to implement. Your SS will not keep any federal income taxes away from your benefits unless you make the explicit request. IF you miss this request making, then you will end up losing a lot of money. This is pertaining to the fact that most of the federal retired officials have to pay income tax on almost 85 percent of their SS retirement benefits. So whenever you apply, make sure you have a W4-V form with you and fill it to make your benefits impervious to tax.
It gets a little tricky here. TSP extracts taxes depending on your withdrawal habits. The TSP will not tax your money unless you withdraw more than 1500 dollars per month though. Otherwise you are going to have to pay serious amount of tax withholding money.