How to Estimate Taxes on Retirement Pension Income

Take a break from your retirement to figure out your taxes.

Estimating taxes on retirement pension income requires some patience and calculation, but the Internal Revenue Service (IRS) provides guidance in Form 1040-ES, Estimated Tax for Individuals. The 1040-ES form is used to calculate estimated tax from all income sources, so you'll need to include information on earnings from bank accounts, investment accounts and employment when you complete the form. Once you have calculated your estimated tax, use the vouchers included in Form 1040-ES to make quarterly payments to the IRS. Quarterly estimated payments are due by April 15, June 15, Sept. 15 and Jan. 15.

Things You'll Need

• Last year's income tax return
• IRS Form 1040-ES
• Form 1099-R
• Pension distribution
• Records of other income

Instructions

1. Gather documentation related to all sources of your income. These may include interest paid by banks on checking and savings accounts, earnings from your non-retirement investment accounts, stock dividends, capital gains and income from employment.

2. Use Form 1040-ES to calculate estimated tax on your retirement pension income and other sources of income. You will need to pay estimated tax if you will owe over $1,000 in tax and your withholding is less than 90 percent of the taxes owed on your current year's return or 100 percent of the taxes you paid last year, whichever is smaller. Increase last year's percentage to 110 percent if your adjusted gross income that year was greater than $150,000, or $75,000 for married taxpayers who file separately.

3. Use the Estimated Tax Worksheet provided in Form 1040-ES to calculate your estimated taxable income based on your income from all sources, minus itemized or standard deductions and taxes previously withheld and paid. The worksheet is easy to use and provides clear instructions.

4. Calculate the tax on your retirement pension income for the current tax year using the 1040-ES Tax Rate Schedules. Add this number to line 6 on the worksheet and adjust for any credits to arrive at your total estimated tax figure.

5. Contact the IRS if you need assistance with calculating estimated tax. You can call the IRS toll-free at 800-829-1040 or stop by a Taxpayer Assistance Center. Call your local center to schedule an appointment and avoid having to wait in line. Check the IRS website for addresses, phone numbers and opening hours for TAC offices (see Resources).

Tips & Warnings

• If you need help calculating estimated tax on your retirement pension income, your tax accountant will likely provide this service as part of the tax preparation process.

• The IRS levies a penalty for underpayment of taxes, so be sure to make your estimated payments on time and in full.

References

• IRS: Form 1040-ES, Estimated Tax for Individuals

Resources

• Read this Article in Spanish
• IRS: Telephone Assistance
• IRS: Contact My Local Office
• IRS: Forms and Publications