White House Urges You to Stop Letting the IRS Hold Your Money. There's a Catch for Retirees

Hey there,

Last month, the Treasury Secretary of the United States walked up to a White House podium and said something that caught a lot of people off guard.

"I want to encourage everyone out there watching today to change their withholding if they haven't already done so."

Scott Bessent wasn't done.

"If you change your withholding, then you will get an automatic real wage increase... on a weekly or a monthly basis. You will be able to keep more of your money this calendar year."

The financial press ran with it. Social media lit up. Millions of Americans started wondering if they were leaving money on the table.

Here's the problem.

Bessent's advice is technically correct. But it was written for workers with paychecks and employers.

If you're retired — the rules are completely different. And if you follow his advice without understanding those differences, you could end up writing the IRS a check next April that nobody warned you about.

Let me tell you what's actually going on. And more importantly — what you should actually do.

Here's the backstory most coverage missed.

Trump's Big Beautiful Bill Act was signed into law in July 2025. It created new tax breaks — including deductions for tip income, overtime earnings, auto loan interest, and the $6,000 Senior Bonus Deduction for Americans 65 and older.

The problem? The IRS didn't update employer withholding tables after the law passed. So throughout 2025, millions of workers had too much withheld from their paychecks — money the government held all year before returning it as a refund.

The numbers confirm it. The average tax refund as of April 17, 2026 is $3,275 — up more than 11% from $3,116 last year.

Bessent's argument: that's not a windfall. That's your money. And you let the government hold it interest-free for twelve months.

He's not wrong. But here's what he didn't say.

If you're retired, you probably don't have an employer withholding taxes from a paycheck. Your income comes from multiple sources — each with its own tax rules, its own forms, and its own default withholding rate.

Here's how the withholding system actually works for retirees:

Social Security benefits — if you want federal taxes withheld from your Social Security benefits, you must file Form W-4V with the Social Security Administration. You can request 7%, 10%, 12%, or 22% of each monthly benefit be withheld. Nothing is automatic. Many retirees set this up once and never revisit it — even as their total income grows.

IRA distributions — for IRA distributions, the law requires that 10% be withheld for the IRS unless you tell the custodian otherwise. That 10% default is often not enough — especially for retirees with large balances and significant RMDs.

Pension and annuity payments — Form W-4P tells the payer of your pension or annuity how much federal income tax to withhold from each periodic payment. If you never submit one, your payer withholds as though you are single with no other adjustments — which often takes out more tax than necessary.

Required Minimum Distributions — increased ordinary income from RMDs can push taxpayers into higher tax brackets, increase the taxable portion of Social Security benefits, and raise Medicare Part B and Part D premiums. That last part catches retirees off guard constantly — a larger RMD today can mean higher Medicare premiums two years from now.

This is not a simple situation. It is not solved by calling your employer and filing a new W-4.

Frank is 72. Carol is 69. They live outside of Nashville, Tennessee.

Frank collects Social Security — $2,200 a month — with a modest 10% withholding set up years ago. Carol takes annual RMDs from her IRA. Her custodian withholds the standard 10% on every distribution.

Last year they got a small refund. They assumed everything was fine.

This year — because Carol's IRA balance had grown — her RMD was $4,000 larger than the year before. That extra income pushed a portion of Frank's Social Security into a higher taxable bracket. Their total tax bill jumped by $3,100.

Their withholding? Still set to cover last year's numbers.

They owed $2,800 in April. No warning. No heads-up from the SSA. No letter from the IRS.

Just a bill.

This happens to thousands of retirees every single year. Not because they did anything wrong. Because nobody told them to review their withholding as their income changed.

Here's the number that should get your attention.

If your total withholding doesn't cover at least 90% of the tax shown on your 2026 return — the IRS assesses an underpayment penalty. The penalty accrues daily at the IRS underpayment interest rate, compounded daily.

For 2026, that rate is 7% per year.

You can avoid it entirely if you meet one of two safe harbors:

If your 2025 adjusted gross income exceeded $150,000 — the threshold rises to 110% of last year's tax, not 100%.

Most retirees have never heard of these thresholds. They assume withholding is automatic. It is not.

Forget the blanket advice. Here's the right approach for retirees specifically — five steps, this weekend:

Step 1 — Pull out your 2025 tax return Look at line 24 on page 2. That's your total federal tax liability for 2025. Write it down. That number is your baseline for 2026.

Step 2 — Add up your current withholding across all sources What's being withheld from your Social Security check? Your IRA distributions? Your pension? Add it all up and compare it to your 2025 baseline.

Step 3 — Estimate whether 2026 will be higher Will your RMDs be larger this year? Did you start a new income source? Did you do a Roth conversion? Any of these increase your tax liability — and your withholding needs to keep pace.

Step 4 — Adjust if you're short

Step 5 — Use the free IRS tool Go to irs.gov/W4App — the IRS Tax Withholding Estimator. It's free, takes about 20 minutes, and generates a pre-filled withholding form for your situation.

There is one piece of Bessent's broader message that directly applies to you.

The Big Beautiful Bill included a $6,000 Senior Bonus Deduction for Americans 65 and older — $6,000 per person, $12,000 for qualifying couples filing jointly. Income must be under $75,000 (single) or $150,000 (joint) to qualify.

If you haven't factored this into your 2026 tax planning, you should. Combined with the elevated standard deduction, it could meaningfully reduce your 2026 tax liability — and change how much you actually need to withhold.

We covered this deduction in detail in your first issue.

Scott Bessent's advice wasn't wrong. It just wasn't written for you.

Retirees have more complex tax situations than workers with a single paycheck. The withholding rules are different. The income sources are different. The penalty for getting it wrong is real — 7% annually, compounded daily, on every dollar you're short.

The mainstream financial press covered Bessent's headline. They didn't cover what it means for the 55 million Americans already in retirement.

That's the gap this newsletter fills.

Every Tuesday, US Retirement Report covers the retirement news and strategies that don't make the evening news. That's why you're here.

See you next Tuesday.

— US Retirement Report

P.S. — Know someone who just retired or is thinking about it? Forward this their way. The withholding trap catches people every single year.

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This newsletter is for informational and educational purposes only and does not constitute financial, tax, or investment advice. Please consult a qualified tax advisor before making any withholding changes.

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