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Financial Information for Senior Military Officers

Did You Get an Unexpected Tax Refund?

Did You Get an Unexpected Tax Refund?
Often Military Senior Leaders get surprised when they file their tax return the year they retire (or a year they change jobs) and they get a refund.  Why?  Some of you who have heard me speak at an ETAP are really scratching your heads because I told you your taxes were going to go WAY up.  The reason may be your Social Security.  Let's review...

You pay Social Security Taxes (6.2%) on your first $118,500 of income.  If you earn more than $118,500 you don't pay taxes on the excess.  As a reminder, you don't pay Social Security Taxes on Military Retirement Income either.  Like your 401(k) limits, which I talked about last previously, your employer doesn't know how much money you made in the military in the year you retire.  The same holds true if you're changing civilian jobs.  That means, that if you earn more than $118,500 in total but from separate jobs you will have too much Social Security tax withheld.

The number can be significant.  Let's say you earned $90,000 in military pay and then move to a job that pays you $100,000 for the remainder of the year (you start work while you're on terminal leave).  Your total wages for the year are $190,000 and since neither employer paid you more than $118,500 you will have paid too much in Social Security Taxes.  How much?  In this case it would be $4,433.  This excess tax should be reported on Line 71 of your Form 1040.  It will be credited against your income tax owed and if you withheld a sufficient amount to cover your income tax you'll get the money refunded.

So, what is the problem?  I can see two...

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