SS W-4V options 0, 7, 10, 12, 22% ? WTH?

[pb4uski]

TurboTax did all the calculations.

I wonder if you had told TurboTax to not include any underpayment penalty (I'm pretty sure that you can) that you would have been fine (and $ richer ).

 

[Midpack]

I wonder if you had told TurboTax to not include any underpayment penalty (I'm pretty sure that you can) that you would have been fine (and $ richer ).

+1. I know you can override the penalty, I’ve done it. But you’re supposed to provide an explanation as to why on Form 2210 Part III. It wasn't challenged by the IRS that year, though that's not proof...

 

[Gumby]

It's the government we're talking about, so they aren't overthinking anything...because they know better than us, they are saving everybody from themselves by making it as simple as possible for the least common denominator, thus withholding levels that match the income tax brackets (plus a 7% thrown in for those whose income is low enough that they are below 10% after the std deduction). And, the government doesn't mind if their break points result in you giving them more money to hold until next year.

I take my inherited IRA RMD in 2 quarterly payments, and cover my safe harbor requirement by withholding with those 2 payments (I can choose the %, and I can take a larger amount than my RMD requires if I want/need to). Now I'm done withholding for the year. The 1st quarter, I technically could withhold $0, because it is less than my standard deduction (i.e. 0% tax rate), but I know pretty well what my interest and divs will add up to over the next 12 months, so I withhold for that now. The 3rd and 4th quarters I'm using dividend and interest from non-retirement accounts. I can take extra from the inherited IRA in December if I want, and can have up to all of it being withheld, or I can sell something from my brokerage (tax gain harvest?). I'm one of the low spenders, so I don't pay much tax anyway, and don't have need to do Roth conversions with my modest IRAs (I have a big brokerage acct, though ).

I also keep a tally of my withdrawals/distributions for the year, and separate them by income or ltcg, and know where the I am relative to the tax bracket breaks (taking into account the standard deduction), so I know what tax rate my next withdrawal/distribution will have. One could draw the little bar graph, that's often used to demonstrate filling the vertical levels of income tax brackets and next to it the LTCG brackets, and could sketch in where they currently fall as to what tax rate your next distribution will require to be withheld.

In an ideal world, everyone would keep track of their tax liabilities on a regular basis throughout the year, rather than being surprised in April. But they don't.

 

[SecondCor521]

+1. I know you can override the penalty, I’ve done it. But you’re supposed to provide an explanation as to why on Form 2210 Part III. It wasn't challenged by the IRS that year, though that's not proof...

It's permissible to not calculate the penalty and not complete Form 2210. If the IRS thinks you owe the penalty, they will calculate it for you and send you a bill.

 

[RetiredHappy]

I'm now pretty sure that even with your 99% tax payment in December, you somehow fell a bit short of the safe harbors.

Now that I'm curious and if you want to bother investigating the real reason: Can you confirm that your December tax payment was done via withholding? Did your tax return include a completed Schedule AI (page 3 of Form 2210)? Did you make any estimated tax payments for that year? Since you mentioned a $3K refund, were there any amounts of that size on Schedule 3 Part II?

(If you'd rather let it go, that of course works for me too. It's $4. But I do like to see people accurately understand their taxes and what's happening with them, though, and I think in this case your understanding is missing something. Not exactly sure what that is though; even though I know a fair amount about taxes, estimated taxes and underpayment penalties are not my strongest suit.)

We always pay more taxes each year than before, in fact we paid about 25% more taxes in 2023 compared to 2022.

Yes, December tax payment was done via withholding from final RMD. No withholding was done for the January RMD. I don't have my tax return with me because we are travelling for fun again. We won't be back for another couple of weeks. All that I know is that we followed every step in TT to complete the return. The approximately $3K was calculated by TT that we would be getting a refund. That exact number was not input into TT.

Our conclusion remains that tax withholding was not done for Jan RMD and hence we incurred the penalty.

 

[SecondCor521]

We always pay more taxes each year than before, in fact we paid about 25% more taxes in 2023 compared to 2022.

Yes, December tax payment was done via withholding from final RMD. No withholding was done for the January RMD. I don't have my tax return with me because we are travelling for fun again. We won't be back for another couple of weeks. All that I know is that we followed every step in TT to complete the return. The approximately $3K was calculated by TT that we would be getting a refund. That exact number was not input into TT.

Our conclusion remains that tax withholding was not done for Jan RMD and hence we incurred the penalty.

Well, if you want to check back when you're back home on the other questions, I'd be interested in figuring it out. But if not, no worries. Hope you are having fun on your trip!

 

[Texas Proud]

Just got a question that I do not know if it was presented...

Are you dealing with ACA credits Maybe that is where the credit comes from and you actually 'owed' taxes...

 

[RetiredHappy]

Just got a question that I do not know if it was presented...

Are you dealing with ACA credits Maybe that is where the credit comes from and you actually 'owed' taxes...

I don't get any ACA subsidies. I pay full freight and itemize our deductions because of that. Our medical expenses are about $35K a year and as such it's more than 7.5% of our AGI.

 

[Dalton]

In an ideal world, everyone would keep track of their tax liabilities on a regular basis throughout the year, rather than being surprised in April. But they don't.

Yeah, it's unfortunate, and evident. Probably goes unnoticed, but a big part of why I only take quarterly distributions is to keep that tracking really simple . Thanks to turbo tax (and the other services) too many apparently don't understand how their taxes are determined. That's why I offered an option of how to look at it.

 

[Koolau]

In an ideal world, everyone would keep track of their tax liabilities on a regular basis throughout the year, rather than being surprised in April. But they don't.

Yeah, if I wanted to w*rk that hard, I'd still be w*rking.

My CPA does a pretty good j*b of taking care of stuff like this for me. I tell her what I plan to do for the year - 401(k) wise and she tells me whether to file quarterly (which I hate) or just leave most of the over payment from last year with the IRS. Haven't been penalized for quite some time now.

 

[RetiredHappy]

I have a detailed spreadsheet on our income and calculated tax liabilities. From the spreadsheet, I know exactly what the itemized deductions size is like. I like to err on the side of overpaying and hence we usually end up with a tax refund of a couple of thousand dollars. Hence the $4 penalty surprised me.

 

[Healthy Lifestyle]

I don't get any ACA subsidies. I pay full freight and itemize our deductions because of that. Our medical expenses are about $35K a year and as such it's more than 7.5% of our AGI.

Wow 35K?
That sounds high to me.

 

[RetiredHappy]

Wow 35K?
That sounds high to me.

It's for 2 of us. The previous year's was $40K+ when I was in an accident and hit my max OOP. My husband has plan F, and an expensive drug - Trulicity. We also have a concierge doctor and LTCI premiums. They all add up.

 

[jebmke]

It's for 2 of us. The previous year's was $40K+ when I was in an accident and hit my max OOP. My husband has plan F, and an expensive drug - Trulicity. We also have a concierge doctor and LTCI premiums. They all add up.

$35K is high-ish but certainly not unusual. I've prepared plenty of tax returns with much higher.

 

[RetiredHappy]

$35K is high-ish but certainly not unusual. I've prepared plenty of tax returns with much higher.

We are on a forum where most of the retired folks who are not yet on Medicare manage to utilize ACA subsidies. $35K for medical is a different paradigm for them.

 

[camfused]

I resurrected this thread to discuss the payment of taxes using tIRA withdrawals, but with my latest round of whatif modifications to my spreadsheet model, I am no longer planning on doing this (except for one year, about 3 years from now). It turns out (as was hinted somewhere earlier) that I am actually better off (gained nearly $500K in the model) using one of my taxable accounts to pay taxes, and letting the tIRA continue to grow (even though that means higher RMDs in the future). LOL. The model still has me doing Roth conversions (up to the IRMMA limit) for the next 16 years.

 

[pacergal]

When we signed up for both our pensions and SS, I elected to have taxes taken out through out the year.
If we withdraw from our investments, I try to figure out safe harbor for est. taxes for the rest of the year. We have only needed to pay a small penalty to the IRS one year when I goofed on my math

 

[Koolau]

I don't think the IRS really cares that their rules are a bit obscure and cause occasional penalties. It's true that the "rules" are all available to tax payers (you could say it's our own fault when we get "caught" in some little pit-fall.) Still, 10 or 12 lines to see if you need to pay more or sooner or whatever gets to be too much for those of us who find such things either boring or painful or obtuse (or all three.) Yeah, I know, 1st world problem.