Spring signifies more than a fresh new year and a break from the cold months of winter, it also means tax season. Most employers and government agencies were required to send forms to employees and citizens by January 31, meaning you likely received forms to help you file.
The deadline to file your taxes this year falls on April 17, 2018. This means you have roughly two months to assemble your necessary paperwork and submit your information to the IRS. You may be tempted to hold off on filing your taxes, but this could be a costly mistake. These two months will go by fast, and you could end up frantically assembling your materials hours before the deadline or face potential penalties.
Keep reading if you’re looking to get ahead of the curve this tax season. Here’s what you need to know about your taxable income, including what you need to report for your Thrift Savings Plan (TSP) income.
Do Retired Employees Pay Taxes on TSP Withdrawals?
Retired employees are required to pay taxes on their TSP withdrawals, which is why they received a 1099-R at the end of January. This applies to all thrift savings plan withdrawals with the exception of qualified Roth withdrawals. Roth TSP withdrawals are tax-free as they are typically paid during the deposit process.
Different tax rules apply to federal civilian employees and members of the armed services, which means the taxation rates and options may be different for your particular case.
Understanding the type of TSP you have and what kind of taxes you need to pay on it is challenging for employees during their first year of retirement. But there is good news: once you determine which tax forms you need and if you owe anything, you won’t have to worry about any changes. Moving forward, the process should remain consistent each year.
Do Current Employees Who Contribute to a TSP Pay Taxes?
Current employees are often just as lost as retired employees when trying to figure out what to do with the money they contributed to their TSP when they complete their tax forms. If you have a traditional thrift savings plan, then taxes are deferred until you start withdrawing money from the account.
However, employees who have a Roth TSP balance won’t have to worry, as the income was pulled after the money was taxed. As long as this income meets the IRS rules for qualified earnings, then you shouldn’t have to worry about paying taxes on it in the future, as you paid them before you deposited the money.
Additionally, some Americans may receive a 10% early withdrawal penalty tax from the IRS if they pulled money from their Thrift Savings Plan before retirement. This does not apply to withdrawals that are moved into a traditional IRA when someone leaves federal service, but it does apply to hardship withdrawals.
There are multiple resources that explain who is exempt from paying the penalty tax on their TSP withdrawal, including this video.
What Should You Expect From The 2018 Tax Season?
The IRS reports that more than 155 million Americans will file their taxes in 2018. The agency expects more than 70% of Americans to receive tax refunds this year. Last year, more than 112 million Americans received tax refunds with an average payment of $2,895.
Despite this promising information, there are other factors that could affect how fast your tax return is processed and distributed this year. This first is the result of government shutdowns. The IRS says there are no expected delays from the January government shutdown, but if there are future disagreements in Congress, it could affect how employees process tax forms.
Another factor affecting the IRS is the new tax plan. NPR reports that the IRS’s budget has been slashed by $900 million, resulting in 21,000 fewer employees. While the agency has asked for additional funds to cover staffing, training, and implementation of the new plan, it’s unlikely that everything will go as smooth as the government wants. In this case, employees filing taxes this year and next might see small delays when receiving their tax refunds as the agency takes more time to process the millions of submissions.
This is another reason why Americans should try to file their taxes early on. The sooner they can submit their forms, the sooner they can get their refunds.
MyFEDBenefits Can Help You Navigate This Tax Season
If you need help assembling materials and getting organized this tax season, MyFEDBenefits can help. You can talk with one of our specialists or find a local expert about your situation and get an idea for what materials you need and what you can expect from your tax filing this season.
Our goal is to make it easy for you to manage your benefits and government income to balance your finances responsibly. Navigating your benefits options can get confusing, and we want to make it easier for you. Reach out today for help. Contact us now.