quarterly tax payments have to equal?

[Ole Red 29]

Hello, this is my first year to pay quarterly taxes (retired last year). My plan was to not withhold taxes from any of my withdrawals/dividends/rollovers (to roth). Then pay 4 equal payments of $16,500 to cover us up to the $326,000 top end of the 24% tax bracket. I have made three quarterly payments to date (each $16,500). I was planning to pay the 4th quarterly payment of $16,500 in January. I just received a distribution from a deferred compensation account and they held out $10,000 for taxes. CAN I CHANGE MY 4TH PAYMENT TO $6,500 TO HIT MY TAX TARGET? Or will the IRS make me fill out extra forms if my 4th payment is less than the previous three? If I pay the full $16,500, then I will have overpaid by $10,000. thanks,

 

[SecondCor521]

They do not need to be the same. The IRS will not make you fill out any forms.

(The main reason people make them the same, I think, is just for simplicity and level budgeting throughout the year. But there's absolutely no IRS requirement to make them identical.)

 

[Koolau]

IIRC we got penalized for changing our quarterly payment (I think we actually paid MORE than we had specified - we had a 'windfall' we wanted covered) WITHOUT what ever paperwork needed to accompany the change. Penalty was less than going back to the accountant to "fix" the change as I recall - though we didn't even know we were doing anything "evil" by overpaying our quarterly - until the dreaded IRS letter arrived.

In this day of zero interest on cash, we usually just overpay on withholding (pension check, RMD's, etc) to AVOID quarterlies. What a hassle to remember and send in on time. Of course, some of the more diligent members here would make the IRS wait for every penny as long as possible, so YMMV.

 

[kaneohe]

Hello, this is my first year to pay quarterly taxes (retired last year). My plan was to not withhold taxes from any of my withdrawals/dividends/rollovers (to roth). Then pay 4 equal payments of $16,500 to cover us up to the $326,000 top end of the 24% tax bracket. I have made three quarterly payments to date (each $16,500). I was planning to pay the 4th quarterly payment of $16,500 in January. I just received a distribution from a deferred compensation account and they held out $10,000 for taxes. CAN I CHANGE MY 4TH PAYMENT TO $6,500 TO HIT MY TAX TARGET? Or will the IRS make me fill out extra forms if my 4th payment is less than the previous three? If I pay the full $16,500, then I will have overpaid by $10,000. thanks,

Yes, you can change Q4 to 6.5K. Because your payments are not equal,
IRS may get curious but,assuming you paid enough including the w/h, they will soon realize all is ok. You will have paid est. tax of 56K which implies quarterly payments of 14K so you paid these faster than required so once IRS does their calculation, there should be no penalty and any forms will be completed by IRS.

 

[OldShooter]

I don't know if this works for you, but we don't figure estimated taxes and we don't make quarterly payments. Every December we just pay the safe harbor tax amount (100% or 110% of last year's tax) by drawing from our IRAs and having 100% of the draw amount withheld as tax payments.

The key to this is that withholding is considered to have been paid over the whole year, so no need to worry about quarterly payments. The 1099s list the withheld amounts and you just plug them into the appropriate boxes in the forms.

Worst case is we overpay a little, but with interest rates at zero that is not particularly painful. Actually, my sloth usually continues and I just let the gummint keep small overpayments and apply to the next tax bill.

 

[RE2Boys]

See: https://www.irs.gov/taxtopics/tc306 for the particulars. All will be well and good as long as your total estimates and withholdings meet the required provisions. If they are insufficient, then you will be introduced to IRS Form 2210 and possibly Schedule AI. These forms are used to calculate the penalty for not timely paying your taxes through the year. Double check your estimates to be sure your payments are sufficient.

 

[audreyh1]

IIRC we got penalized for changing our quarterly payment (I think we actually paid MORE than we had specified - we had a 'windfall' we wanted covered) WITHOUT what ever paperwork needed to accompany the change. Penalty was less than going back to the accountant to "fix" the change as I recall - though we didn't even know we were doing anything "evil" by overpaying our quarterly - until the dreaded IRS letter arrived.

In this day of zero interest on cash, we usually just overpay on withholding (pension check, RMD's, etc) to AVOID quarterlies. What a hassle to remember and send in on time. Of course, some of the more diligent members here would make the IRS wait for every penny as long as possible, so YMMV.

I think you would just have had to fill out form 2210 to attribute the excess income to the later quarter. But if you don’t do your own taxes......

I pay different amounts each quarter because I use the annualized income (AI) method as my income occurs mostly in Dec. but I also file form 2210 which shows I don’t owe a penalty.

I use safe harbors when I can, but not if I think I’ll pay higher taxes than I’ll end up owing.

 

[jfn111]

As an RE Agent i make quarterly payments of 25% of that quarters income. Since I have no idea what next quarters earnings are going to be all of my payments are unequal.

 

[SecondCor521]

IIRC we got penalized for changing our quarterly payment (I think we actually paid MORE than we had specified - we had a 'windfall' we wanted covered) WITHOUT what ever paperwork needed to accompany the change.

I believe you when you say you changed your quarterly payment.

And I believe you when you say you had an IRS penalty.

I really doubt that the penalty was strictly due to the increased/changed quarterly payment. I think there had to be some other reason.

 

[Rambler]

I make only one quarterly payment per year...right after we pay anything due on 4/15. Why? We travel quite a bit (except this year) and don’t want to worry about missing a payment. That said, my deferred income payout started this year, in January, and our accountant seems to think they took out enough in taxes to cover the deferred income and income from my taxable acct...so no quarterly fed payment this year. We did have to make a state payment because megacorp didnt withhold anything for state taxes.

Edit to add: we’ve never been penalized for making a single payment...except for the lost interest we could have earned if we’d have kept it in a safe interest bearing acct of some sort...not enough dollars these days to worry about, given the penalty for forgetting a payment will be much bigger than the potential lost interest.

 

[Closet_Gamer]

My regular payroll deductions are generally right on the money in terms of government obligations. When I have shares/options vest they are under-taxed and I calculate the difference, sending it in as as quarterly. Every quarter I calculate the owed taxes on my dividends and send that in as well.

Between that and then the reduced net tax from charity/deductions, I always wind up with the government having more of my money in a timely fashion than they are actually due.

I've never researched whether this was the right way to do this, but they've never complained back at me.

 

[audreyh1]

I believe you when you say you changed your quarterly payment.

And I believe you when you say you had an IRS penalty.

I really doubt that the penalty was strictly due to the increased/changed quarterly payment. I think there had to be some other reason.

Failure to fill out form 2210. I believe their tax preparer should have caught this and requested the additional info to fill out the form. Makes their accountant look bad and should have been resolved with no additional charge.

 

[audreyh1]

I make only one quarterly payment per year...right after we pay anything due on 4/15. Why? We travel quite a bit (except this year) and don’t want to worry about missing a payment. That said, my deferred income payout started this year, in January, and our accountant seems to think they took out enough in taxes to cover the deferred income and income from my taxable acct...so no quarterly fed payment this year. We did have to make a state payment because megacorp didnt withhold anything for state taxes.

Edit to add: we’ve never been penalized for making a single payment...except for the lost interest we could have earned if we’d have kept it in a safe interest bearing acct of some sort...not enough dollars these days to worry about, given the penalty for forgetting a payment will be much bigger than the potential lost interest.

No, you won’t get penalized for paying early, or for paying all with the initial quarterly payment.

BTW - you can schedule all four quarterly estimated payments when you use EFTPS.gov . Very convenient for the four equal payments scenario.

 

[Badger]

I have made equal quarterly payments for a few years now and every year I have owed more than the year before due to RMDs starting up. There have been a few times I missed the due dates and paid later (sometimes a couple of months later) and have not had my hand spanked. Maybe I just got lucky but I am hoping the IRS has better things to do since they always get their pound of flesh each year.


Cheers!

 

[audreyh1]

My regular payroll deductions are generally right on the money in terms of government obligations. When I have shares/options vest they are under-taxed and I calculate the difference, sending it in as as quarterly. Every quarter I calculate the owed taxes on my dividends and send that in as well.

Between that and then the reduced net tax from charity/deductions, I always wind up with the government having more of my money in a timely fashion than they are actually due.

I've never researched whether this was the right way to do this, but they've never complained back at me.

If it happens that the quarterly estimated amounts paid met or exceeded the taxes you ended up owing/4, or prior year safe harbor, then there would be no complaints. It’s only if 1 or more quarters appear to be underpaid that the IRS will flag it unless form 2210 is included and illustrates lumpy income that justifies lower estimated tax payments for those quarters.

 

[audreyh1]

I have made equal quarterly payments for a few years now and every year I have owed more than the year before due to RMDs starting up. There have been a few times I missed the due dates and paid later (sometimes a couple of months later) and have not had my hand spanked. Maybe I just got lucky but I am hoping the IRS has better things to do since they always get their pound of flesh each year.


Cheers!

Don’t know what tax software you are using, but they would already figure any penalty for you based on the actual payment dates provided. Unless you tell the software to have the IRS calculate the penalty. Either way, it would have been flagged.

If you had fed taxes withheld already from RMD withdrawals, timing is not an issue - and a late year withdrawal with tax withheld can make up for earlier underpayments or late payments.

 

[Letj]

What happens if the income was close to year-end as in the case of taking your distribution at the end of the year or incurring capital gains from real estate sales at the end of the year? Would he still need to make estimated tax payments except for the last quarter of the year?

 

[JARON46]

I Make my estimated tax payments (EFTPS) monthly on my pension, SS, interest and dividends. I keep a running spread sheet on what I estimate my taxes to be.
Sometimes I change the amount that I pay monthly. I have been doing this for 3 years and have had no complaints from IRS.

 

[mrfeh]

They do not need to be the same. The IRS will not make you fill out any forms.

+1

We make payments based on income during the given quarter. Never any complaints from the IRS.

ETA: I think we've received a refund each year we've been paying estimated taxes

 

[audreyh1]

What happens if the income was close to year-end as in the case of taking your distribution at the end of the year or incurring capital gains from real estate sales at the end of the year? Would he still need to make estimated tax payments except for the last quarter of the year?

If you have no income until the end of the year, then you can wait until Jan 15 and make one estimated tax payment of 90% of what you are estimated to owe. However you will also need to include form 2210 showing that all the income was received in Q4.

An RMD distribution near the end of the year - if taxes are withheld from the distribution, it will be treated as if the taxes were paid equally in each tax quarter, so you don’t have to worry about it. If taxes are not withheld so that you pay them separately then the first paragraph applies.

 

[audreyh1]

I Make my estimated tax payments (EFTPS) monthly on my pension, SS, interest and dividends. I keep a running spread sheet on what I estimate my taxes to be.
Sometimes I change the amount that I pay monthly. I have been doing this for 3 years and have had no complaints from IRS.

So when you fill out taxes paid in your tax return, you have 12 different entries instead of 4?

 

[JARON46]

So when you fill out taxes paid in your tax return, you have 12 different entries instead of 4?

I just checked I have been paying monthly since 2013.
When I fill out my taxes I total up my taxes paid each quarter and enter them.

So no I do not have 12 entries, I have 4 entries

 

[Ole Red 29]

Thanks everyone. Sounds like the consensus is the quarterly payments do not have to be equal, as long as I don't underpay my taxes. If I do underpay, then I can avoid penalty by filing form 2210? Is that right?

Since the bulk of my "income" is from rolling funds from a pretax IRA to a Roth IRA and I want to pay taxes separately from post tax funds, the option of using an IRA to pay taxes doesn't work for me.

 

[scrabbler1]

Since I retired 12 years ago, a disproportionately large portion of my income has always been in the 4th quarter. As a result, I make estimated tax payments only for the 4th quarter (except for one year when I had a large cap gain distribution in late June).


Three reasons for this:


(1) The 4 "quarters" aren't really all 3-month periods. Instead of 3,3,3,3 months they are 3,2,3,4 months, so already there is a bias favoring the 4th quarter (it's 1/3 of the year).


(2) With many funds making their lone or at least largest distribution at the end of the year, all or most of a fund's taxable income will be in the 4th quarter.


(3) I have sometimes not had to make any estimated tax payments throughout the year because the anticipated ACA premium subsidy put me into a safe harbor which had me "Stop," as the estimated tax form's and Form 2210's instructions directed me to do. When unexpectedly large late-year distributions pushed me over the ACA income cliff, not only did my income rise but the subsidy which would have offset some or all of it went away. I then made a fairly large 4th quarter payment to pay some of the large tax bill.

 

[sengsational]

As an RE Agent i make quarterly payments of 25% of that quarters income. Since I have no idea what next quarters earnings are going to be all of my payments are unequal.

+1

We make payments based on income during the given quarter. Never any complaints from the IRS.

ETA: I think we've received a refund each year we've been paying estimated taxes

I owe zero tax up to the point in December when I pull or convert from tIRA style accounts. If the custodian allows it, I set withholding to equal my tax obligation. But I've run into a problem in doing withholding in the past, and instead made an estimated tax payment. Never penalized and never filled out a form to document lumpy income. The state of NC tried to penalize me once, but I pushed back, and they went away.