How to Figure Taxes on Retirement Income
- 1). Report retirement or pension amounts you receive on IRS Form 1040 on Line 15a or Line 16a.
- 2). Determine the amount of retirement income that is subject to income tax. Look at the 1099-R forms you receive from your retirement plan. Box 2a contains the amount of taxable income. Report taxable retirement income on Line 15b or Line 16b.
- 3). Complete Federal income tax return Form 1040 through line 43. The amount on Line 43 is your taxable income. The amount on Line 43 includes your taxable retirement income and your taxable income from other sources, minus your deductions and exemptions.
- 4). Reference the tax tables for the year you're figuring tax. You can access current and prior year tax tables for free IRS website. Look at the column that matches your filing status to determine the correct tax on your income.
- 5). Add additional taxes. If you're self-employed or take an early retirement plan distribution, your income may be subject to additional tax. You may have an early retirement distribution if you withdraw from your fund before you reach the age of 59 and 6 months. Early distributions that do not qualify for an exception are subject to a 10 percent penalty. The penalty is in addition to the income tax due on the withdrawal, but is calculated only based on the amount of your distribution.
- 6). Deduct your tax credits from the tax on your income. Credits may include refundable credits such as income tax withholding and earned income credit, as well as non-refundable credits from Lines 47 through 53. The result is the amount of income tax you must pay.
