facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
Bigger Tax Refund Than Expected? Thumbnail

Bigger Tax Refund Than Expected?

Taxes Military Pay and Benefits

A Surprise for Many Retired Senior Military Officers

If you’ve heard me speak, you’ve heard me say that your taxes are going to go way up when you retire.  And…you retired last year and your refund was actually bigger than you expected.  What gives?  Am I really that far off base?  No, this is the result of a unique quirk in the way Social Security taxes are withheld.

Military and Civilian Employer Withhold Too Much

If you’re a retired Colonel/Captain or higher you probably noticed that your pay went up in December.  It really wasn’t a Christmas bonus.  Social Security is only withheld on a portion of your base pay (and none at all on your retirement pay).  For last year, that amount was $127,200 (It is $128,400 for 2018).  If your total wages were more than $127,200 last year, and you retired last year you probably had too much Social Security tax withheld. Here is an example…

  • You retired mid-year, last year and your total base pay was $69,000
  • You were hired shortly after that into a $200,000 a year job and your pay from that job was $100,000
  • Your total wages for the year was $169,000
  • Both employers withheld Social Security taxes on all your wages for a total of $10,478
  • The total withholding should have been $7,886
  • You have $2,592 available for paying your income tax or refund

Ka-Ching!  A refund

Next Year Won’t Be the Same

Assuming you stay in the same civilian job this year, you won’t have the same result.  Your employer will stop withholding Social Security taxes when your wages hit the annual limit. And, if you decided I didn’t know what I was talking about when I said your taxes are going way up, you’re in for a nasty surprise.

Watch Out for This One Too

If your spouse is employed and earning wages (or has self-employment income) it is possible that you could exceed $250,000 in wages for the year and become subject to an additional 0.9% Medicare (ObamaCare) surtax.  Depending on how the wages are distributed, your employer may not take any additional withholding for this tax that you will owe.  Be ready for that.  By the way, the tax still applies if you’re the only wage earner.  It is just that your employer will start the additional withholding when your income reaches $200,000 (even though you need $250,000 in wages to be subject to the tax if you are married).

Taxes Will Surprise You After Retirement

I'm convinced that taxes are the single biggest financial related surprise for retired Senior Military Officers.  You need to really pay attention to your tax situation or get someone to help you....they are your biggest lifetime expense.




Disclaimer
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. C.L. Sheldon & Company, LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to C.L. Sheldon & Company, LLC website or incorporated herein, and C.L. Sheldon & Company, LLC takes no responsibility therefore. All such information is provided solely for convenience, educational, and informational purposes only and all users thereof should be guided accordingly. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.