Last Minute Tax Tips
Things to keep in mind if you still haven’t filed—or even if you have.
Are you one of those people who waits until the last minute to file your tax return? Even if so, you’ve still got a little time. And if you’re a recent federal retiree, or plan to be one soon, there are some important things you should know. And even if you didn’t procrastinate, you can file a form 1040-X and amend your return without re-doing the whole thing.
I don’t claim to be a certified public accountant. But I do know a few things about paying taxes if you are a federal retiree. Here are some of them:
Be sure to have a copy of IRS Publication 721 handy when preparing your returns. This is the Tax Guide to U.S. Civil Service Retirement Benefits. It will help you learn how to compute the tax-free portion of your Civil Service Retirement System or Federal Employees Retirement System benefit. Don’t get too excited. It’s not a lot of money, but it’s something.
If you left federal service and took a refund of your retirement contributions under FERS last year (instead of retiring), remember that those contributions were already subject to tax when they were withheld from your biweekly salary. The only part of the refund that is taxable is the interest that you may have been paid.
Remember that your retirement benefit is subject to federal income tax. Annuitants can file form W-4P or use the Office of Personnel Management’s Services Online to set up and adjust their tax withholding. You can also choose to make estimated tax payments. In many areas, your benefit is taxable on the state level as well. OPM doesn’t automatically withhold state income tax for new retirees. You need to make sure this withholding is set up if your state requires it.
OPM sends retirees form 1099-R, showing how much they received in federal retirement benefits along with the taxable amount. The form also indicates the contributions that you made to the retirement fund during your career and the federal tax that was withheld during the year.
Be sure to read the Thrift Savings Plan’s Publication 26, Tax Rules about TSP Payments.
For survivor annuitants whose monthly annuity check includes a survivor annuity for one or more children, each child's annuity counts as their own income (not yours) for federal income tax purposes. If your child can be claimed as a dependent, treat the taxable part of their annuity as unearned income when applying the filing requirements for dependents.
If you retired on disability, the disability annuity you receive is taxable as wages until you reach your minimum retirement age. However, beginning on the day after you reach minimum retirement age, your payments are treated as a retirement annuity and you can begin to recover the cost of the annuity.
Retired public safety officers should also know about this special tax rule: You can exclude from your income any distributions made from an eligible retirement plan that are used to pay the premiums for accident insurance, health insurance and long term care insurance. The premiums can be for coverage for you, your spouse, or dependents.You can exclude from income the smaller of the amount of the insurance premiums or $3,000. The taxable annuity shown on Form CSA 1099-R doesn't reflect this exclusion. Report your total distributions on line 5a of your return. Report the taxable amount on line 5b. Enter “PSO” next to the appropriate line on which you report the taxable amount.
Before filing your tax return, be sure to check it for a few common issues, such as choosing the proper tax status, correctly listing the name, date of birth and Social Security number of you and your dependents, and including the right bank account number if you want your tax refund directly deposited.
One last thing: Many federal workers continue to work from home, and may wonder if they can claim the cost of a home office as a tax deduction. Unfortunately, according to the IRS, the answer is no if you’re a current employee.