safe harbor rules and estimated taxes.

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aruba joe
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safe harbor rules and estimated taxes.

Post by aruba joe »

Retired. All income from IRA' distributions. I know I must pay taxes on 90% of my 2023 estimated income to avoid a penalty.( the other option of 110% of last years is higher). So if 90% of my estimated income results in taxes of say $50,000 by what date do I have to pay half of that ($25,000 )
in taxes? May 31, 2023. or June 15th 2023? Taxes will be withheld when I elect an IRA distribution.
Silk McCue
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Re: safe harbor rules and estimated taxes.

Post by Silk McCue »

Taxes paid via withholding are considered timely even if done on the last business day of the year. If you can meet your obligations via withholding and not by using estimated payments you will be fine.

We withhold all taxes for the year in December from an IRA.

Cheers
Last edited by Silk McCue on Sun May 28, 2023 12:32 pm, edited 1 time in total.
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MP123
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Re: safe harbor rules and estimated taxes.

Post by MP123 »

As long as you pay at least 90% of current year taxes through IRA withholding it doesn't matter when you pay. You could withhold it all in December if you wanted.

But if you need to make any estimated tax payments (not through withholding) then you'll need to do so in four equal payments. You could accelerate that, but can't pay late without a modest "penalty".
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FiveK
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Re: safe harbor rules and estimated taxes.

Post by FiveK »

aruba joe wrote: Sun May 28, 2023 12:06 pm I know I must pay taxes on 90% of my 2023 estimated income to avoid a penalty....
Close. That particular safe harbor is "withhold at least 90% of the current year's actual tax". See the wiki link for details.
mkc
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Re: safe harbor rules and estimated taxes.

Post by mkc »

[Topic is now in Personal Finance (Not Investing) - mod mkc]
Bogle-007
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Re: safe harbor rules and estimated taxes.

Post by Bogle-007 »

Silk McCue wrote: Sun May 28, 2023 12:14 pm Taxes paid via withholding are considered timely even if done on the last business day of the year. If you can meet your obligations via withholding and not by using estimated payments you will be fine.

We withhold all taxes for the year in December from an IRA.

Cheers
MP123 wrote: Sun May 28, 2023 12:16 pm As long as you pay at least 90% of current year taxes through IRA withholding it doesn't matter when you pay. You could withhold it all in December if you wanted.

But if you need to make any estimated tax payments (not through withholding) then you'll need to do so in four equal payments. You could accelerate that, but can't pay late without a modest "penalty".

Is the part about the withholding also true for interest earned form treasuries?
Silk McCue
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Re: safe harbor rules and estimated taxes.

Post by Silk McCue »

Bogle-007 wrote: Sun May 28, 2023 5:34 pm
Silk McCue wrote: Sun May 28, 2023 12:14 pm Taxes paid via withholding are considered timely even if done on the last business day of the year. If you can meet your obligations via withholding and not by using estimated payments you will be fine.

We withhold all taxes for the year in December from an IRA.

Cheers
MP123 wrote: Sun May 28, 2023 12:16 pm As long as you pay at least 90% of current year taxes through IRA withholding it doesn't matter when you pay. You could withhold it all in December if you wanted.

But if you need to make any estimated tax payments (not through withholding) then you'll need to do so in four equal payments. You could accelerate that, but can't pay late without a modest "penalty".

Is the part about the withholding also true for interest earned form treasuries?
Not really certain why you are asking about this specific source. Withholding is withholding regardless of the source. There are no special circumstances.

Cheers
Bogle-007
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Re: safe harbor rules and estimated taxes.

Post by Bogle-007 »

Question about the W-4 for withholding....

Image

https://ibb.co/s3N8Cpp

In box 4a of the W-4 form, does the amount that ends up being withheld according to box 4a differ when filling out the form in January vs the middle of the year such as June?
Bogle-007
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Re: safe harbor rules and estimated taxes.

Post by Bogle-007 »

Silk McCue wrote: Sun May 28, 2023 5:38 pm
Bogle-007 wrote: Sun May 28, 2023 5:34 pm
Silk McCue wrote: Sun May 28, 2023 12:14 pm Taxes paid via withholding are considered timely even if done on the last business day of the year. If you can meet your obligations via withholding and not by using estimated payments you will be fine.

We withhold all taxes for the year in December from an IRA.

Cheers
MP123 wrote: Sun May 28, 2023 12:16 pm As long as you pay at least 90% of current year taxes through IRA withholding it doesn't matter when you pay. You could withhold it all in December if you wanted.

But if you need to make any estimated tax payments (not through withholding) then you'll need to do so in four equal payments. You could accelerate that, but can't pay late without a modest "penalty".

Is the part about the withholding also true for interest earned form treasuries?
Not really certain why you are asking about this specific source. Withholding is withholding regardless of the source. There are no special circumstances.

Cheers
I think understand -- thanks!
Also, will this work if you are withholding through your job's W-4? I'm trying to get ahead on paying taxes on treasury income.
Silk McCue
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Re: safe harbor rules and estimated taxes.

Post by Silk McCue »

Bogle-007 wrote: Sun May 28, 2023 5:44 pm
Silk McCue wrote: Sun May 28, 2023 5:38 pm
Bogle-007 wrote: Sun May 28, 2023 5:34 pm
Silk McCue wrote: Sun May 28, 2023 12:14 pm Taxes paid via withholding are considered timely even if done on the last business day of the year. If you can meet your obligations via withholding and not by using estimated payments you will be fine.

We withhold all taxes for the year in December from an IRA.

Cheers
MP123 wrote: Sun May 28, 2023 12:16 pm As long as you pay at least 90% of current year taxes through IRA withholding it doesn't matter when you pay. You could withhold it all in December if you wanted.

But if you need to make any estimated tax payments (not through withholding) then you'll need to do so in four equal payments. You could accelerate that, but can't pay late without a modest "penalty".

Is the part about the withholding also true for interest earned form treasuries?
Not really certain why you are asking about this specific source. Withholding is withholding regardless of the source. There are no special circumstances.

Cheers
I think understand -- thanks!
Also, will this work if you are withholding through your job's W-4? I'm trying to get ahead on paying taxes on treasury income.
I quote myself - “Withholding is withholding regardless of the source. There are no special circumstances.”

Cheers
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FiveK
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Re: safe harbor rules and estimated taxes.

Post by FiveK »

Bogle-007 wrote: Sun May 28, 2023 5:43 pm Question about the W-4 for withholding....

Image

https://ibb.co/s3N8Cpp

In box 4a of the W-4 form, does the amount that ends up being withheld according to box 4a differ when filling out the form in January vs the middle of the year such as June?
Yes, because if you fill out the form in January your withholding will be affected on more paychecks than if you wait until June.

See p. 9 of Pub. 15-T to see how a payroll program can use your W-4 entries to calculate withholding for each paycheck.
Bogle-007
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Re: safe harbor rules and estimated taxes.

Post by Bogle-007 »

FiveK wrote: Sun May 28, 2023 10:02 pm
Bogle-007 wrote: Sun May 28, 2023 5:43 pm Question about the W-4 for withholding....

Image

https://ibb.co/s3N8Cpp

In box 4a of the W-4 form, does the amount that ends up being withheld according to box 4a differ when filling out the form in January vs the middle of the year such as June?
Yes, because if you fill out the form in January your withholding will be affected on more paychecks than if you wait until June.

See p. 9 of Pub. 15-T to see how a payroll program can use your W-4 entries to calculate withholding for each paycheck.
Thanks - looks like I’ll do the math and use box 4c to withhold the right amount then.
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FiveK
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Re: safe harbor rules and estimated taxes.

Post by FiveK »

Bogle-007 wrote: Sun May 28, 2023 10:05 pm Thanks - looks like I’ll do the math and use box 4c to withhold the right amount then.
Good plan. That's consistent with the "Use Step 3 to reduce and Step 4c to increase withholding" suggestion in cell Calculations!F58 of the personal finance toolbox spreadsheet.

Don't know why Step 3 is "per year" and Step 4c is "per paycheck" but that's how W-4 works....
lstone19
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Re: safe harbor rules and estimated taxes.

Post by lstone19 »

Silk McCue wrote: Sun May 28, 2023 5:49 pm
Bogle-007 wrote: Sun May 28, 2023 5:44 pm I think understand -- thanks!
Also, will this work if you are withholding through your job's W-4? I'm trying to get ahead on paying taxes on treasury income.
I quote myself - “Withholding is withholding regardless of the source. There are no special circumstances.”

Cheers
To amplify on Silk's answer, withholding and estimated tax payments are simply payments on your tax account. They are never "for" any particular income. At the end of the year, the payments you've made are reconciled against the tax due as calculated on your 1040 to determine how much more is owed or what refund you are receiving and if your payments were timely and if not, a penalty is calculated as shown on 2210 (which the IRS will determine for you unless one of the 2210 exceptions apply).
Nowizard
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Re: safe harbor rules and estimated taxes.

Post by Nowizard »

It sounds like to pay taxes later than required by estimated taxes, it would be necessary to take RMD's in December or at least late in the year. Is that correct? In other words, if RMD's were taken in, say, April, wouldn't the withholding be taken at that time as well?

Tim
Silk McCue
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Re: safe harbor rules and estimated taxes.

Post by Silk McCue »

Nowizard wrote: Mon May 29, 2023 8:31 am It sounds like to pay taxes later than required by estimated taxes, it would be necessary to take RMD's in December or at least late in the year. Is that correct? In other words, if RMD's were taken in, say, April, wouldn't the withholding be taken at that time as well?

Tim
You could elect to withhold zero tax from RMDs/withdrawals early in the year and withhold the full amount required for taxes late in the year if you wish.

Cheers
Bogle-007
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Re: safe harbor rules and estimated taxes.

Post by Bogle-007 »

Does anyone know if you can ask Fidelity/other brokerage to withhold for interest coming from treasuries?
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