What Types of Taxes Are Paid for a Retirement Check?
- When you reach retirement, you tax liabilities may change. Since you are no longer an employee, your retirement checks will no longer be subject to payroll taxes for Social Security and Medicare. You may still be liable, however, for federal and state income taxes depending on the source of your retirement check.
- Your retirement check will probably be subject to federal income taxes. If you take a withdrawal from a traditional IRA, 401k, 403b or other pension or retirement plan that you contributed to with pretax dollars, when you withdraw the money you will have to pay federal income taxes. This money is taxed as normal income.
According to Bankrate.com, if Social Security income is your only source of revenue, you will usually not have to pay income taxes on your monthly check. If you have other income, such as pensions, however, some of your check may be taxable. If it is taxable, you will need to have money set aside from the check for federal income tax withholding. You can do this either by making estimated tax payments or by filing a W-4V form that will have the Social Security Administration automatically withhold money from your check. - According to the American Association of Retired Persons, over half of states do not tax Social Security benefits, and seven states--Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming--have no income tax at all. If you do not live in on of those states, however, you will have to report your Social Security income on your taxes. In addition, unless you live in one of the seven states with no income tax at all, you will have to pay state income taxes on most retirement checks as well.
- If you take a withdrawal from a Roth IRA or Roth 401k plan, you do not have to pay income tax on the money. Contributions to these two types of retirement accounts are made with after-tax dollars, and as a result you are allowed to withdraw the money tax-free at retirement. You must still report these distributions on your form 1040 tax return on line 15a as retirement account distributions, but you do not include them as taxable distributions on line 15b.
