Estate withholding tax

[Randall]

Can an estate withhold income tax on behalf of beneficiaries and report it on their K-1s?

[Abby Normal]

Just have the estate pay estimated tax payments on behalf of the beneficiaries, or advise the beneficiaries to do it themselves. I'm guessing there's concern that the beneficiaries will be irresponsible and not have money to pay taxes when they're due?

There's no box on the K1 for withheld taxes.

 

[SaraEA]

You can make a Section 643(g) election to do this, but there are a lot of restrictions.  See the instructions for Form 1041.  But why would you want to do this?  The estate is not responsible for the beneficiaries' paying their taxes.  Further, you have no idea what each B's tax bracket is so you might pay in way too much or way too little.  Let them handle it.

[Roberts]

On 12/20/2018 at 1:15 PM, Abby Normal said:

Just have the estate pay estimated tax payments on behalf of the beneficiaries, or advise the beneficiaries to do it themselves. I'm guessing there's concern that the beneficiaries will be irresponsible and not have money to pay taxes when they're due?

There's no box on the K1 for withheld taxes.

 

Box 13 Code A?

13. Credits and credit recapture

Code A: Credit for estimated taxes

 

[Catherine]

20 hours ago, SaraEA said:

You can make a Section 643(g) election to do this, but there are a lot of restrictions.

One trust a client of mine is beneficiary of did this.  The trust paid tax for eight bene's.  My client, and one other, were hounded for almost a YEAR by the state for that estimated tax that the state (my own incompetent MA, of course) had, had proof of, admitted it had, but could NOT match with one quarter of the bene's.  Ugh!  We sent them the same information monthly for WAY too long before they got it matched up.  Took intervention by the state taxpayer advocate office.  If they were competent, they'd be dangerous!

[SaraEA]

Roberts, that is correct if the estate makes the 643(g) election and files Form 1041T by March 6 (if a calendar year) or 65 days after the close of the fiscal year.  I still don't know how you would calculate how much to pay in estimates.  It might work with one beneficiary, or maybe a few if all get equal shares of distributions and are in the same tax bracket, but how would you know that?  It would be cleaner if the fiduciary encloses a letter with the distribution warning each B that taxes will be due when they file a return.

[Randall]

Thanks for replies.  There will be no need now.  The beneficiaries will make their own estimated tax payments.  There was a question of one beneficiary wanting the estate to pay the tax but he's ok with making his own payment.  Whew.