Preparing for retirement? Know how it can affect taxes

Independent adult-industry workers deserve clear, straightforward information about how retirement income is taxed. This review draft adapts authoritative IRS guidance into a concise resource for Sex Worker Taxes, focusing on independent contractors and small businesses in the adult industry.

Examples of retirement income that’s taxed

There are several different sources of retirement income, and each may be taxed differently.

• Pensions and annuities: Benefits in the form of pension or annuity payments may be fully or partially taxable depending on how the retirement plan was funded.
• Social Security benefits: Depending on a taxpayer’s filing status and other income, a portion of their Social Security benefits may be taxable. Taxpayers can use the IRS Interactive Tax Assistant to help determine if any of these benefits are taxable.
• Retirement account withdrawals: Distributions from traditional IRAs and other retirement plans are generally taxable. However, qualified Roth distributions are tax-free.

Check withholding

Newly retired or soon-to-be-retired taxpayers may need to adjust their withholding. While they can generally request federal income tax be withheld from benefits such as pensions, annuities, and Social Security payments, it may not be enough. Taxpayers can use the IRS Tax Withholding Estimator, a free, easy-to-use tool that helps workers and retirees estimate the amount of federal income tax to withhold for the taxes they will owe next year.

The estimator reflects the changes to credits and deductions under the Working Family Tax Cuts, including the enhanced deduction for seniors. If withholding isn’t enough to cover their tax obligations, taxpayers may need to make estimated tax payments during the year.

When withdrawals are required

Generally, taxpayers must begin taking required minimum distributions from traditional IRAs and certain retirement plans when they reach age 73. Different rules may apply depending on the type of retirement account and when the taxpayer retires.

IRS resources

The IRS provides information specifically for seniors and retirees, including information about retirement income, tax withholding, filing requirements and available tax benefits. Understanding these rules before retiring can help taxpayers make informed financial decisions and prepare for any changes in federal tax obligations.

More information

Saving for retirement? IRAs are an option