Tax Withholding vs Quarterly Payments to IRS
Greetings all, new guy here. I retired January 2021. I took 50k IRA withdrawal and received 33k from SSA. I had zero federal tax withheld from either source. My plan was to just write a check (roughly $12k) this year by the April deadline and we’d be all square. Apparently the IRS doesn’t see it like that! After doing taxes yesterday I notice these vouchers for quarterly payments of approximately $3k each (12k total) going forward THIS year! I couldn’t believe my eyes, but apparently this is normal.
My question is:
If I make an IRA withdrawal tomorrow for $70k and have 20% withheld (14k), I will have fulfilled my obligation and would no longer be required to make quarterly advanced payments correct? It would seem to be the case, but it’s difficult to find anything definitive on IRS site
Thanks in advance
Permalink Submitted by Alan - IRA critic on Thu, 2022-02-24 22:51
Yes, you can avoid quarterly estimates by using withholding to pay your taxes during the year. Withholding is treated as being paid equally throughout the year regardless of when your IRA distribution is taken, so you could even wait until December to take the withholding distribution from your IRA, and you would not be subject to underpayment penalties as long as the amount withheld is sufficient. Generally, with your income all you need to pay through withholding is 100% of your 2021 tax liability (12k), at anytime in 2022.
Permalink Submitted by Robert Ranson on Fri, 2022-02-25 14:01
Thank you Alan, I was hoping for that kind of reply.