My husband retired from the military last year and started a new job. I just filed our tax return and was surprised that we owed money because of his military pension. What can we do to avoid owing a lot of money when I file our tax return next year?
Use Our Tool: Retiree Tax Map
Your situation is not unusual. The IRS says that almost half of the unpaid taxes owed by current and retired federal employees at tax time are owed by retired military. Many military retirees have too little money withheld from their pension payouts for taxes because they calculated their withholding based on that income alone. But if they get a new job after they retire or if their spouse works, they might jump to a higher tax bracket and owe more than they expected.
When you retire from the military, you fill out Form W-4P to tell the Defense Finance and Accounting Service how much tax to withhold from your monthly retirement pay. Military retirement pay is subject to federal taxes but is excluded from state income taxes in some states (see Which States Won’t Tax My Retirement Income?). If you need to boost withholding, you can call the DFAS Retiree Pay customer service number at 800-321-1080 or make the changes in your myPay account online at mypay.dfas.mil. See the IRS’s Federal Income Tax Withholding After Leaving the Military fact sheet for more information.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Or you can have more money withheld from your paychecks at your current job. File a new form W-4 with your employer’s human resources department claiming fewer allowances (the fewer allowances you claim, the more tax is withheld). See Set Your Tax Withholding Right for more information.
Your take-home pay will decrease after you submit the new W-4 reducing the number of allowances, but you’ll owe less money when you file your taxes in the spring. If you only owed a few hundred dollars this year, you may want to keep the extra money in your paychecks and be prepared to pay up at tax time. See IRS Publication 505, Tax Withholding and Estimated Tax, for more information.
Veterans Administration disability compensation generally is not taxable. See the IRS’s Information for Veterans with Disabilities for more information.
-
You Don’t Want to Retire in Portugal: Here Are Three Tax Reasons WhyRetirement Taxes With the NHR benefit retiring and pension taxes increasing, you might rethink your retirement plans in Portugal.
-
Home Depot's Winning Ways Fueled Its 100,000% ReturnHome Depot's wide moat leaves little room for competition – and shareholders have profited as a result.
-
Five Scary Things the IRS Can Do If You Owe Back TaxesTax Law Traveling in 2025? The IRS can take your passport (and house) if you don’t pay your tax bill.
-
Early Tax Refund Options Could Trap Your CashTax Refunds Don’t be fooled into thinking you’re not getting a loan — because you really are.
-
First-Time Filing Taxes? Key Tax Tips to Know for 2025Tax Filing Preparing your IRS taxes for the first time may seem daunting, but here are some return preparation and filing tips to start.
-
Legislation Cracking Down on IRS Tax Refund Mail Theft AdvancesIRS A string of bipartisan measures targeting taxpayer refunds, rights, and protections move forward on Capitol Hill.
-
Ten IRS Audit Red Flags for Retirees in 2025Retirement Taxes Retirees who think they can escape the IRS audit machine should think again.
-
Could ERC Delays Get Worse if Trump Downsizes the IRS?IRS The Trump administration’s push to shave down the IRS can impact taxpayers like you.
-
IRS Income Tax Refund Schedule 2025: When Will Your Refund Arrive?Tax Refunds Your 2025 IRS tax refund may arrive sooner than you think. Here’s a schedule for when you can expect your check or direct deposit.
-
IRS Tax Refunds Are $1,000 Smaller This Year: Here's WhyTax Refunds Inflation-related changes to the tax code could result in a larger refund for some, but you’ll have to wait.
