What is the best way to pay estimated Federal Taxes in Retirement?

[audreyh1]

I have heard that CPAs usually don’t file form 2210 unless asked to in which case they need more info about when income was received. This might have at least reduced your penalty. But yeah, educational expense.

 

[Koolau]

This year, anticipating a large increase in 2024 income, we had the CPA leave our refund with the Feds. She said that would cover us for any significant changes in taxes - and therefore not require us to file quarterlies. We hate quarterlies though YMMV.

 

[Rianne]

We’ve used CPAs to file taxes for 40 years. Kind of embarrassed to say that on this forum. For 2024 I will do our taxes. Since DH had home based consulting LLC starting in 2014, we’ve paid all our quarterly’s at once. He had an even income every month, used similar expenses every year, paid both sides of Medicare and SS. Any refund applied to the next years taxes. When I sent our payments in by snail mail this month, the checks were cashed within 3 business days. Is mail faster to the IRS? The state check within 2 days.

I’ll simply do WH in the future. Our taxes will be simple next year.

 

[RetiredHappy]

Using the withholding method should have worked. Look at your numbers. You must not have satisfied the hold harmless provision. Did you have 100% of last years tax withheld? (Or 110% if your income was high enough?)

We definitely withheld 110% of our income , as in the safe harbor provision.

 

[RetiredHappy]

Can you walk through the form that determined the penalty? Are you sure that the withholding is entered as withholding and not estimated taxes paid?

I am pretty sure we didn't make a mistake entering into TT. We did a one-time estimated/pre-payment of $6,500 in Q2 because we wanted to make sure that we pre-paid enough taxes. The other large sum was withheld in our last RMD (99%) in December.

I have an annuity which automatically withholds taxes, and as is my husband's SS.

Despite getting a $3K refund, TT is indicating that we need to make quarterly payment of $1,297 this year. I went ahead and scheduled 3 quarterly payments (Apr, Jun and Sep). I assume that since we will be doing another large withholding for my husband's final RMD withdrawal in early December, we won't need to make quarterly payment for Dec. This is more confusing for us than we have expected to be. Should I also make another quarterly payment in December? I am expecting another refund of couple of thousand dollars next year.

 

[RetiredHappy]

If the only tax payment you have is via withholding, something seems wrong in the way you entered that 1099-R. You didn't fill out form 2210 Schedule AI did you? You definitely don't want to tell the IRS that you paid everything in Q4.

Take a look at your 1040 lines 16 to 33 and make sure all of those numbers are correct and make sense.

If the 1040 looks ok, then I believe there's an option in TurboTax to say that you want to let the IRS figure the penalty and send you a bill. Check that box. The IRS is very unlikely to come after you for a $4 penalty. For my Tax-Aide clients it usually takes about 3 years of significant underpayment before they get a letter.

Do I need to fill out a 2210 for the $4? It was just a pop-up box that TT showed before proceeding to show our refund.

1040 lines are filled out by TT and I don't see anything wrong with the numbers that we had provided.

Argh, I have assumed that the $4 penalty have been computed into the refund. Are you saying that I have to separately send $4 over to IRS?

 

[RetiredHappy]

Form 1040-SR (page 3) line 38 shows a $4 penalty with (see instructions). I have to figure out where to find the instructions.

I think they have computed the $4 penalty in the refund:
Refund 34 If line 33 is more than line 24, subtract line 24 from line 33. This is the
amount you overpaid .....................

35 a Amount of line 34 you want refunded to you.

The difference between 34 and 35 amount is $4. I think we are OK.

 

[cathy63]

I am pretty sure we didn't make a mistake entering into TT. We did a one-time estimated/pre-payment of $6,500 in Q2 because we wanted to make sure that we pre-paid enough taxes. The other large sum was withheld in our last RMD (99%) in December.

I have an annuity which automatically withholds taxes, and as is my husband's SS.

Despite getting a $3K refund, TT is indicating that we need to make quarterly payment of $1,297 this year. I went ahead and scheduled 3 quarterly payments (Apr, Jun and Sep). I assume that since we will be doing another large withholding for my husband's final RMD withdrawal in early December, we won't need to make quarterly payment for Dec. This is more confusing for us than we have expected to be. Should I also make another quarterly payment in December? I am expecting another refund of couple of thousand dollars next year.

Ah, so you also had a mix of withholding and estimated payments. Making estimated payments unevenly throughout the year can make it appear that you owe a penalty. If you want to get rid of the $4 penalty for 2023, you would fill out Form 2210 Schedule AI. I assure you it is a pain and most people would consider the amount of time they'd spend on that form to be worth way more than the $4 they'd save. Personally, if it were me, I would just check the box in TTax that says something like "let the IRS figure my penalty". I would not file Form 2210. Odds are in your favor that they wouldn't penalize you at all. Even if they do send you a bill, it's not going to be more than the penalty that would have been due on the date you actually pay the tax due. The $4 is going up a bit every day that you wait to pay, so by April 15th, it might actually be $5 or $6.

For 2024 -- the refund you're getting for 2023 is not related to the quarterly payments you owe for 2024. I think TTax is taking your total tax liability from line 24 of your 1040, which must be about $1297 x 4 = $5188 and using that to determine the quarterly payments for this year. Ideally you would increase your withholding from your annuity and IRA withdrawals to cover the entire tax and not make any quarterly payments. If you can't or don't want to do that, then the other way to do it is to subtract the expected withholding from your 2023 tax liability and divide the remainder by 4 and use that for the quarterly payment amount.

Yes, you should make a quarterly payment in Dec, even if you have withholding in that month. If you choose to do estimated payments, make all 4 payments.

 

[cathy63]

Do I need to fill out a 2210 for the $4? It was just a pop-up box that TT showed before proceeding to show our refund.

1040 lines are filled out by TT and I don't see anything wrong with the numbers that we had provided.

Argh, I have assumed that the $4 penalty have been computed into the refund. Are you saying that I have to separately send $4 over to IRS?

Form 1040-SR (page 3) line 38 shows a $4 penalty with (see instructions). I have to figure out where to find the instructions.

I think they have computed the $4 penalty in the refund:
Refund 34 If line 33 is more than line 24, subtract line 24 from line 33. This is the
amount you overpaid .....................

35 a Amount of line 34 you want refunded to you.

The difference between 34 and 35 amount is $4. I think we are OK.

Yes, the $4 is subtracted from the refund. You don't send it in separately.

 

[RetiredHappy]

Ah, so you also had a mix of withholding and estimated payments. Making estimated payments unevenly throughout the year can make it appear that you owe a penalty. If you want to get rid of the $4 penalty for 2023, you would fill out Form 2210 Schedule AI. I assure you it is a pain and most people would consider the amount of time they'd spend on that form to be worth way more than the $4 they'd save. Personally, if it were me, I would just check the box in TTax that says something like "let the IRS figure my penalty". I would not file Form 2210. Odds are in your favor that they wouldn't penalize you at all. Even if they do send you a bill, it's not going to be more than the penalty that would have been due on the date you actually pay the tax due. The $4 is going up a bit every day that you wait to pay, so by April 15th, it might actually be $5 or $6.

For 2024 -- the refund you're getting for 2023 is not related to the quarterly payments you owe for 2024. I think TTax is taking your total tax liability from line 24 of your 1040, which must be about $1297 x 4 = $5188 and using that to determine the quarterly payments for this year. Ideally you would increase your withholding from your annuity and IRA withdrawals to cover the entire tax and not make any quarterly payments. If you can't or don't want to do that, then the other way to do it is to subtract the expected withholding from your 2023 tax liability and divide the remainder by 4 and use that for the quarterly payment amount.

Yes, you should make a quarterly payment in Dec, even if you have withholding in that month. If you choose to do estimated payments, make all 4 payments.

Thanks. It's TT that figured out that we have a $4 penalty. Line 24 of our 1040 is about $20K. So I have no idea how TT came up with quarterly payments of $1297.