Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Penalty for not enough withholding due to severance?
Old 05-17-2019, 11:09 AM   #1
Recycles dryer sheets
 
Join Date: Aug 2015
Posts: 408
Penalty for not enough withholding due to severance?

Do I need to make added estimated Fed Tax payments in 2019 because of unusually increased income? I retire in 13 days, and will get a monthly severance for 14 months, on the 25th of each month, with normal withholding from it, as if the only income. My pension will start 8/1 on the first of each month, with taxes withheld as if IT was the only income. Plus I will get a severance incentive, paid for unused vacation, bonus, etc. Wife gets pensions plus SS with no taxes withheld. Basically, until Sept, I will not really know what my exact total Fed taxes will be via Taxcaster, though I made a decent estimate. Are the circumstances and income differential increase compared to last year, (about $60k or 30%) enough to not worry about a penalty for the larger tax bill in April 2020, or am I required to make estimated payments last quarter or 2019? If I donít HAVE to make payments in 2019, I am ok with the large tax bill in 2020.
__________________

Perryinva is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-17-2019, 11:23 AM   #2
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 3,532
If you pay via withholding 100% of last yrs taxes (110% if AGI>150K) by end of yr, you should be ok via the previous yr safe harbor.
https://www.irs.gov/businesses/small...stimated-taxes

"Penalty for Underpayment of Estimated Tax
If you didn’t pay enough tax throughout the year...... through withholding ........, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they ......... paid at least .................... 100% of the tax shown on the return for the prior year, .................. Please refer to Publication 505, Tax Withholding and Estimated Tax, for additional information."

You should be able to adjust your withholding to meet this which would be the simplest. You can also do by paying estimated taxes but it is a somewhat ugly thing to do come tax time.
__________________

kaneohe is offline   Reply With Quote
Old 05-17-2019, 07:59 PM   #3
Recycles dryer sheets
 
Join Date: Aug 2015
Posts: 408
Thank you very much. I was already set for more than last year, but I need to check to make sure if it is 110%.
Perryinva is offline   Reply With Quote
Old 05-17-2019, 08:38 PM   #4
Thinks s/he gets paid by the post
Souschef's Avatar
 
Join Date: Dec 2015
Location: Santa Paula
Posts: 2,238
I underestimated last year by about 4K, and the penalty was $9. No big deal. It was not even worth filling out a Form 2210.
__________________
Retired Jan 2009 Have not looked back.
AA 50/45/5 considering SS and pensions a SP annuity
WR 2% SI 2SS & 2 Pensions
Souschef is offline   Reply With Quote
Old 05-17-2019, 09:51 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 3,532
Quote:
Originally Posted by Souschef View Post
I underestimated last year by about 4K, and the penalty was $9. No big deal. It was not even worth filling out a Form 2210.
Do you understand how that was calculated? The simple-minded way is to take that underpayment at the interest rate charged......this yr, it is 5% so guessing last yr was 4%. 4% of 4K is $160. Because the payments are due
"quarterly" during the yr, the actual amount is derated to 2/3 or so of that amount so I would have guessed $106 or so.

Perhaps you mean that you were short 4K of the total amount for that yr?
A penalty of that amount suggests that you were short of safe harbor by 333.....either 100(110)% of previous yr tax or 90% of current yr. Perhaps previous yr tax was lower?
kaneohe is offline   Reply With Quote
Old 05-17-2019, 11:39 PM   #6
Thinks s/he gets paid by the post
Souschef's Avatar
 
Join Date: Dec 2015
Location: Santa Paula
Posts: 2,238
Quote:
Originally Posted by kaneohe View Post
Perhaps you mean that you were short 4K of the total amount for that yr?
A penalty of that amount suggests that you were short of safe harbor by 333.....either 100(110)% of previous yr tax or 90% of current yr. Perhaps previous yr tax was lower?
My previous year was lower, in fact i got a refund. I am sure that is the case, I was just short of safe harbor.
__________________
Retired Jan 2009 Have not looked back.
AA 50/45/5 considering SS and pensions a SP annuity
WR 2% SI 2SS & 2 Pensions
Souschef is offline   Reply With Quote
Old 05-18-2019, 01:36 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 3,532
Quote:
Originally Posted by Souschef View Post
My previous year was lower, in fact i got a refund. I am sure that is the case, I was just short of safe harbor.
Thanks.....just wanted to make sure OP got the right message. The penalty
is not terrible but it's not necessarily negligible either.......maybe about 3-4%
of the shortfall from safe harbor.
kaneohe is offline   Reply With Quote
Old 05-21-2019, 04:49 PM   #8
Full time employment: Posting here.
 
Join Date: Feb 2007
Posts: 978
Quote:
Originally Posted by Souschef View Post
I underestimated last year by about 4K, and the penalty was $9. No big deal. It was not even worth filling out a Form 2210.
There were some exceptions to underpayment penalties for 2018 due to the tax law changes: https://www.irs.gov/newsroom/irs-wai...-short-in-2018

Quote:
The IRS is generally waiving the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty.
I only remembered this because I was a beneficiary of the exception (i.e. would have had a penalty but it was waived).
copyright1997reloaded is offline   Reply With Quote
Old 05-23-2019, 02:51 AM   #9
Recycles dryer sheets
 
Join Date: Aug 2015
Posts: 408
Glad to see I’m not the only one that gets caught up in this.
Perryinva is offline   Reply With Quote
Old 05-23-2019, 11:02 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Sep 2014
Location: Grapetown
Posts: 1,674
Our pensions, 401k withdrawals, royalty income are all subject to federal withholding. My rental income, which I control to a certain extent, is not, so therefore is variable. I pay $6-12 a year in federal penalties. My state does not tax any retirement income, but does tax rental income. But, if I keep my net rental income below $13,000, then I qualify for income tax forgiveness.
__________________

Winemaker is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Enough to Retire, but not old enough to touch it.... armor99 Young Dreamers 51 05-19-2018 03:31 PM
Withholding and Avoiding a Penalty travelover FIRE and Money 10 02-13-2018 05:19 PM
Hi - 52 and have had Enough! Do I have enough? enough Hi, I am... 28 02-06-2014 10:46 PM
Income tax withholding - not enough BristolBane Other topics 16 06-30-2005 10:49 AM
Interesting...rising medical costs not due to malpractice payouts cute fuzzy bunny Life after FIRE 15 06-10-2005 11:52 AM

» Quick Links

 
All times are GMT -6. The time now is 11:57 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.