Linda Jensen | How to Pay Less Taxes on Your Federal Retirement Income

LINDA JENSEN- Paying tax on the federal retirement income is a necessity, but there are many ways to ensure that you pay less tax than you have been probably paying till now. If you want to learn how to pay less tax on your federal retirement income, then you must keep reading on. Here we are explaining how you can pay fewer taxes on your social security and TSP income.

The Extension on Filing Federal Retirement Income Taxes

It is a fact that most people file their federal retirement income taxes in April. However many people still prefer filing extensions and have until 16th October to file this year. Another fact is that people who have been paying income taxes may get a nasty surprise when they see the bottom line on the federal income tax return as withholding can be considerably different for retirement income as compared to employment income.

If you have ended up paying more taxes then you need to read on to know how to save taxes the next year. If you are among those people who are yet to retire, you will be glad that you read this article as you will not be paying a large amount of taxes due in the first year of retirement.

The Difference

When you are working in a federal job, you simply file a W-4, and all the vital taxes are withheld from your paycheck. You just set it and forget it. Things change when you retire.

Annuity and Taxes

Most people fill out a W-4P with retirement papers, and the taxes are withheld from the monthly payments. This withholding is usually based on the last W-4 filed when a person was still and employee. It is highly likely that the W-4 covers all the taxes that are due from CSRS or FERS annuity.

Social Security and Taxes

When you consider the social security withholding, things start to get difficult. It is very likely that 85 percent of your social security will be subject to a federal income tax at your rate for the ordinary income. However, some retirees will find that a lesser portion is considered to be taxable. Hence, the higher your income is, the higher would be the percentage of your social security benefit that is eligible for a federal income tax.

It is a fact that social security will not withhold anything from the payments for taxes until you request for the same. The main thing here is to avoid a tax surprise by paying the income tax on the social security as you go. You should ask the social security to withhold taxes from your monthly payments when you apply. In case you are applying for social security income online, you should do it by using the remarks section of the form. Alternatively, you can file a form W-4V after applying for social security.

Another useful advice to save extra tax on your federal retirement income is that you should make quarterly tax payments. These payments are due on January 15, April 15, June 15 or September 15. If you are a bit forgetful or you tend to accidentally spend the money you have set aside for tax purposes, then you should ask the social security to withhold 25 percent of your payment for paying up the federal retirement income taxes.

TSP and Taxes

If you need to know about how your federal retirement income in TSP will be taxed, you should check a booklet that is available on the website of TSP and offers a detailed table that describes the withholding on each kind of withdrawal. As per the TSP statistics, the most common withdrawal is known as substantially equal monthly payments in which withdrawal is withheld as if you were filing jointly, married and claiming three exemptions. It is usually there if the payments are likely to continue for a time span of 10 years.

A CPA expert calculated that you need to be withdrawing more than USD 1,700 per month before TSP starts the withholding process. So, you should increase the amount of withholding by completing withholding portion of TSP withdrawal form.

In case you have begun the distributions already, and you want to have more money withheld then you should file a W-4P. You should also change the withholding on form TSP-73 during the open season as this form is available on TSP website during open season. Like social security, you can also make quarterly estimated tax payments in TSP.


It is a fact that most people do not like to pay taxes and they like it even less when the taxes are levied on federal retirement income but all of us need to pay them. Many people have no idea how taxes are withheld from retirement sources of revenue like social security and TSP. So the best idea could be to make changes now and avoid a penalty in the future. Talk to a financial expert such as Linda Jensen and learn more about your options.

Linda Jensen is the principal and owner of Asset Care & Preservation Services with offices in Olympia, WA.  Linda began her career with Prudential Preferred in 1994 where she was an agency leader.  She earned the credentials of a financial planner and has been in practice as an investment and insurance professional since that time.  Linda Jensen started her own company in 1997.

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