If you have been blessed to have a pension after retirement, AND, are going to seek some form of employment after retirement, then here’s a great tax tip that I discovered after reading the May 2009 edition of Kiplinger’s Retirement Report, p. 12:
If you’re a pensioner who is returning to work, you may need to adjust your tax withholding to account for the new source of income. Getting your withholding on your pension and your paycheck in sync can avoid an unexpected tax bill next year.
Generally, you file Form W-4P if you have money withheld for tax from your pension payout. When returning to work, a former retiree will file a Form W-4 to withhold money from employer pay.
Use IRS worksheets to figure out how many allowances to claim. Then choose how you want to divide up those allowances between the two sources of income. For example, you could claim all your entitled allowances on your Form W-4 so you can take home most of your check and put zero allowances on your W-4P so that your pension will cover your tax bill.
For more information, refer to ‘Retirees Returning to the Workforce’ in IRS Publication 919.
Joan Jackson, Publisher
Author of e-booklets:
~101 Online Financial Calculators Every Entrepreneur (and Everyone!) Needs
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