Federal Income Tax Withholding after

1 Federal Income Tax Withholding after leaving the Military Almost half of the unpaid taxes owed by current and retired Federal employees are A series of informational publications designed owed by retired military. Most often, this is simply because these retirees don't have a to educate taxpayers about the tax impact of complete understanding of their tax obligation. This publication outlines some steps you significant life events. can take to ensure you don't end up having a large tax bill after you leave the service. Tax Withholding and Other Information. Many retired military members are surprised at the amount of Federal Income tax they owe when they file their first tax return after retiring from the military. This happens because they move into a higher tax bracket as a result of having Income from two sources (military retirement and civilian employment) and not having enough tax withheld. The problem is further complicated if their spouse also works or if they have Income from other sources.

2 WHAT TO KNOW What types of Income are For a free paper copy of any listed form or Prior to leaving the military, you should complete nontaxable? publication, please call 1-800-829-3676 (1-800- Form W-4P ( Withholding certificate for Pension Some Income is not subject to tax. A few TAX-FORM). or Annuity Payments) to tell the Defense Finance examples are veteran's benefits, disability pay for For additional questions about tax relief and your & Accounting Service (DFAS) how much tax to certain military or government-related incidents, responsibilities, you can call 1-800-829-1040. withhold from your monthly retirement pay. worker's compensation, and cash rebates from a dealer or manufacturer of an item you purchase. Some IRS offices offer walk-in assistance and you When you start a new job outside the military, can find out where these offices are located by your new employer is required to ask you to FREQUENTLY ASKED QUESTIONS calling the same toll free number.

3 Complete Form W-4 (Employee's Withholding Q. As a military retiree is my retirement Allowance certificate ) to determine how much pay taxable? Forms and Publications that may be of assistance: tax they should withhold from each paycheck. A. Payments you receive as a member of a Publication 501, Exemptions, Standard military service generally are taxed as wages Deduction, and Filing Information Some retirees confuse military retirement pay, which is taxable, with Veterans Administration except for retirement pay, which is taxed as a l Publication 505, Tax Withholding and (VA) Disability Compensation or other non-tax- pension. If your retirement pay is based on age Estimated Tax able VA benefits. If you are not sure whether or length of service, it is taxable and must be l Publication 525, Taxable and Nontaxable your retirement Income is fully taxable, do not included in your Income as a pension on lines Income select exempt on your Withholding form until 16a and 16b of Form 1040 or on lines 12a and l Publication 554, Tax Guide for Seniors you check with the VA or DFAS.

4 If exempt 12b of Form 1040A. Do not include in your Income the amount of any reduction in retirement l Publication 560, Retirement Plans for Small instead of receiving Form W-2 at the end of the Business tax year showing wages paid and taxes withheld, or retainer pay to provide survivor annuity for your spouse or children under the Retired l Publication 575, Pension and Annuity Income you will receive Form 1099-R from DFAS showing your taxable military retirement pay and the Serviceman's Family Protection Plan or the l Publication 721, Tax Guide to Civil amount of tax withheld. Survivor Benefit Plan. Service Retirement Benefits For additional information, see Publication 525. l Publication 915, Social Security and Although Form W-4 comes with line-by-line Q. I am a military retiree. Where can I go Equivalent Railroad Retirement Benefits instructions, there are calculations and terms to change my retirement pay l Publication 939, General Rule for Pensions which may be confusing.

5 While some employers Withholding ? and Annuities may have employees in personnel or human A. There are two ways to change your military l Form 1040, U. S. Individual Income Tax resources departments who can help you to retirement pay Withholding . You can call the Return complete the form correctly, it is your responsi- Retiree Pay customer service number at DFAS at bility, not your employer's, to make sure enough l Form 1040A, U. S. Individual Income Tax 1-800-321-1080. Or, you can make changes tax is withheld. Return online via DFAS's myPay secure web-based pay management system. The myPay system lets l Form 1040-ES, Estimated Tax for Individuals WHAT TO DO l Schedule C, Profit or Loss From Business active duty military, National Guard and Reserve It is very important that you have the correct members, some Federal government civilian l Schedule C-EZ, Net Profit From Business amount of tax withheld from your paycheck, and employees, and military retirees and annuitants lS chedule SE, Self-Employment Tax from your monthly military retirement pay.

6 If you quickly change pay information like Federal and have a working spouse or more than one job, a state Withholding . If you are a myPay account FREE TAX RETURN ASSISTANCE. general rule of thumb is to figure the total number holder, log in at If you Many of you may have received free tax filing of allowances you are entitled to claim on all jobs want to set up a new account or need help with assistance through the military Volunteer In- using worksheets from only one Form W-4, claim your existing account, call the myPay Customer come Tax Assistance (VITA) program. If you do that number of allowances on the W-4 for your Service Center at 1-877-363-3677. not have access to this service after you retire, highest paying source of Income and claim zero allowances on your other Forms W-4. many community organizations also offer a FOR ADDITIONAL INFORMATION level of free VITA tax assistance. WHERE TO GO FOR HELP All of the following forms and publications can be Volunteer Income Tax Assistance (VITA) and Since computing Income tax Withholding can be found on the Internal Revenue Service Internet Tax Counseling for the Elderly (TCE) Sites offer confusing, the Armed Forces Tax Council and site ( ).

7 Free tax return preparation to individuals having the IRS jointly produced a short educational If you have additional questions, the IRS also low to moderate Income . To find free tax help video. This 15-minute CD portrays steps taken has a toll free number with personnel ready to near you, call IRS at 1-800-829-1040 or AARP. by one military retiree to avoid a potential tax bill help you. The number is 1-800-829-1040. Some TaxAide at 1-888-227-7669. after getting a job in the civilian world. This video IRS offices offer walk-in assistance and you can is available on the American Bar Association find out where these offices are located by Web site and can be accessed at calling the same toll free number. org by inserting Federal Taxes after the Military Many of you may have received free tax filing in the search block. assistance through the military Volunteer In- The IRS has a Withholding calculator on its Web come Tax Assistance (VITA) program. If you do site that you can use in determining how much not have access to this service after you retire, tax should be withheld.

8 Many find the calculator many community organizations also offer a level easier to understand than the Withholding form, of free VITA tax assistance. To find a site con- since the calculator is interactive. It can be ac- venient for you, simply call the IRS toll free cessed by inserting Withholding calcu-lator in number at 1-800-829-1040. the search block at Publication 4782 (Rev. 10-2012) Catalog Number 53298M Department of the Treasury Internal Revenue Servic