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Federal Tax Withholding from MegaCorp Pension
Old 02-03-2023, 10:11 AM   #1
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Federal Tax Withholding from MegaCorp Pension

I've been receiving a pension from my former employer for several years. The amount of the pension does not change and there is no COLA adjustment from year to year.

Starting with February of this year, the amount of Federal tax being withheld has decreased substantially. I have not requested any changes in the withholding amount and when I call the plan administrator, they have no clue as to why, and their only comment is to consult a tax advisor.

Is anyone else that is receiving a MegaCorp pension seeing a difference from month to month or year to year in the federal tax withholding amount?

If so, do you know why it is changing?

Thanks.
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Old 02-03-2023, 10:14 AM   #2
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Because tax brackets have been going up with inflation but your pension is not?
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Old 02-03-2023, 10:41 AM   #3
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The IRS adjusts the tax brackets on a yearly basis to account for inflation. To change your withholding, contact your employer and request a W4 form.
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Old 02-03-2023, 10:41 AM   #4
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No change, but my pension is so small they only withhold due to my request to override the default amount of 0.
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Old 02-03-2023, 10:43 AM   #5
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I think Audreyh1 is correct. Suppose you were well into the 22% marginal bracket. Due to the inflation adjustment, the bottom of that bracket moved up from $83,550 to $89,450 so $5900 of your pension drops into the 12% bracket, requiring $590 less withholding ((22-10) x 5900)= 590 *

The young and wife have both have pensions. They are Diet COLA'd, but the adjustment occurs in July, so the gross amount is the same in January as it was in December. And I can confirm that our Federal withholding drops every January.


* there is also a smaller effect caused by the bottom of the 12% bracket moving up.
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Old 02-03-2023, 11:37 AM   #6
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Makes sense. Thanks.
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Old 02-03-2023, 12:09 PM   #7
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I get a pension and my withholdings for both state and federal went down.
I have only been receiving my pension for a year so this is my first experience with this. Although cola’d that won’t kick in until May this year so my gross amount is the exact same amount that I’ve gotten for the past 11 months.
I guess it could be tax brackets but I don’t recall that happening very often when I was working. I always knew exactly how much my pay was or should be and if something was different I always checked out the reason.
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Old 02-03-2023, 01:15 PM   #8
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I have a mega-corp non-COLA'ed pension. I'm not sure if everybody can do this, but the "system" I log into for my retirement benefits management allows me specify 99 deductions and an additional $ amount for Fed and State Tax withholding so that is what I do so I know how much "base tax" I am paying.

e.g. I have had $700 specified for Fed and $150 for State the few years that is what they withheld and reported on their 1099 ($8400 Fed, $1800 State). That pretty much covers taxes on my Pension, SS, and after tax distributions.

I do occasionally have to make modest quarterly FED and State payments depending on how much additional money I grab and from where.
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Old 02-03-2023, 01:16 PM   #9
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Sadly, I can only fill out a paper form W4P and mail it to them.
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Old 02-03-2023, 04:41 PM   #10
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Quote:
Originally Posted by freedomatlast View Post
I've been receiving a pension from my former employer for several years. The amount of the pension does not change and there is no COLA adjustment from year to year.

Starting with February of this year, the amount of Federal tax being withheld has decreased substantially. I have not requested any changes in the withholding amount and when I call the plan administrator, they have no clue as to why, and their only comment is to consult a tax advisor.

Is anyone else that is receiving a MegaCorp pension seeing a difference from month to month or year to year in the federal tax withholding amount?

If so, do you know why it is changing?

Thanks.
My January, non-cola, Megacorp pension withholding matched to the penny to last years numbers. As others have noted, I assumed that the numbers would change slightly due to the new tax bracket windows, but they didn't. However, I believe that my withholding's are calculated as if my pension income is my only source of income as they only withhold ~3.3% for federal tax based on my allowances. Full disclosure, I HATE W-4 forms, so I haven't used one for over 30 years now and always just adjust my "additional withholding amount" and leave everything else constant. Right now I see I have $2,425 additional withholds with 3 allowances. (Yes, I have had 3 allowances now for the past 25 to 30 years and have never had kids).
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Old 02-03-2023, 05:03 PM   #11
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I set the federal tax withholding on my pension to the amount of my choice. It could be zero if I wanted. And it didn't change in January.
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Old 02-03-2023, 06:25 PM   #12
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I set the federal tax withholding on my pension to the amount of my choice. It could be zero if I wanted. And it didn't change in January.
Pension does not start until age 60 for me. However, reading the Summary Plan Description, I can also specify the Federal tax withholding amount.
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Old 02-03-2023, 07:41 PM   #13
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My withholding from my pension has been the same since I retired ten years ago and started my non-cola pension right away.
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Old 02-03-2023, 07:49 PM   #14
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I've just let my former employer withhold whatever tax they want to withhold from my non-COLA pension payment; I adjust my other tax withholdings to get the totals I want. The amount withheld changes each year - it dropped a lot in year 2 and has slowly drifted downward since then as the tax brackets move upward. It's never been the same 2 years in a row.

The drop this year in the federal withholding was a bit bigger than previous years but still only 3-4%; not exactly exciting. The state withholding hasn't changed yet, that usually happens in the March payment.
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Old 02-03-2023, 09:47 PM   #15
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Quote:
Originally Posted by freedomatlast View Post
I've been receiving a pension from my former employer for several years. The amount of the pension does not change and there is no COLA adjustment from year to year.

Starting with February of this year, the amount of Federal tax being withheld has decreased substantially. I have not requested any changes in the withholding amount and when I call the plan administrator, they have no clue as to why, and their only comment is to consult a tax advisor.

Is anyone else that is receiving a MegaCorp pension seeing a difference from month to month or year to year in the federal tax withholding amount?

If so, do you know why it is changing?

Thanks.
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Old 02-04-2023, 07:08 AM   #16
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Mine has changed yearly, but the change is so small it is not worth me pursuing to find out why. Since I make up any tax difference at the end of the year via a 401K withdrawal, it does not matter to me.
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Old 02-04-2023, 03:08 PM   #17
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I guess I should have read my December retiree news letter.
This was included:

Tax Withholding: Effective January 1, 2023, the IRS released a revised Form W-4P that changes the federal tax withholding elections available and the calculation method that we use to determine the amount to be withheld. If you are already receiving your pension and are not making any changes to your federal withholding elections, then you’re not required to file a new form. A tax advisor can help you decide if you should make any changes to your tax withholding elections for your 2023 benefits. Learn more.
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