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My wife and I began getting Social Security without withholding

before I retired. We have...
My wife and I began getting Social Security without withholding before I retired. We have paid several thousand each April 15 including a meager under withholding penalty. We felt it was worth the penalty to have the use of the money during the year. Now I am retired and our income is an annuity, SS and IRA distributions. For this tax year, we could wind up with less than 50% of our tax covered by withholding. We recently became aware of the periodic tax payment provision and wonder whether we are setting ourselves up for a bigger penalty this year. Are we required to make periodic payments to the IRS?
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Answered in 3 minutes by:
7/17/2013
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 16,261
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified

Robin D :

Hello and thank you for using Just Answer,


In most cases, you must pay estimated tax for 2013 if both of the following apply.
1. You expect to owe at least $1,000 in tax for 2013, after subtracting your withholding and refundable credits.
2. You expect your withholding and refundable credits to be less than the smaller of:
a. 90% of the tax to be shown on your 2013 tax return,
or
b. 100% of the tax shown on your 2012 tax return.
Your 2012 tax return must cover all 12 months.

Robin D :

You will need to estimate what you expect your tax to be for 2013. If no withholding is being made at this point then you may want to make the estimated tax payments so no penalty is added when you file.

Robin D :

The easiest way to check is to look at your last return.

Customer:

Based on that, we should have been making them for the past 3 years. Is the IRS really that lax in spotting these things?

Robin D :

Not really lax but dependent on the amount, they may feel it is not cost effective to pursue. Besides, you would have been paying a penalty for the underpayment of tax in those years when you filed.

Robin D :

The penalty covers the under payment so the IRS has covered their need to "go after" taxpayers that underpay.

Customer:

My understanding of the IRS publication is that if we were to make a periodic payment this late in the year we would automatically be hit with a late penalty. Is that correct? Also the underpayment penalty is quite small - less than $100 for over $7k in tax. Is the late payment penalty also a small amount?

Robin D :

The underpayment penalty is not a great amount. Many decide that the earnings they can receive on investments more than covers the penalty and is worth the use of their money during the year.
The late payment penalty is a totally different issue. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date. There is also interest applied.

Customer:

The tax-filing due date being the date the periodic payment is due or April 15?

Robin D :

For the above I mentioned it is the due date of the return. But the estimated payments also have their own late payment if the date for each quarter is missed. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.

Customer:

Thank you

Robin D :

Your positive rating is always thanks enough.


 

Robin D :

I really enjoyed working with you – please feel free to request me again when you come back to ask another question.

Robin D :

When you visit your question homepage, you’ll see a link to request me again. This link displays and works whether I am online or offline.

Robin D :

Can I assist you with any thing else or supply you with the proper form?

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 16,261
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified
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Category: Tax
Satisfied Customers: 16,261
16,261 Satisfied Customers
Experience: 15years with H & R Block. Divisional leader, Instructor

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