IRA Tax Withholding

[Christian]

A client I have takes his annual MRD from his IRA in December each year. He has federal and state income tax taken out when he does. In reading my Kiplinger tax letter awhile back I was surprised to note that it stated that federal taxes withheld on a once a year distribution are treated as if paid throughout the year which means he can add a monthly addition to his quarterly federal withholding. I assume you would divide the amount withheld by twelve producing a monthly figure which can then be included in computing his quarterly payments. I have not encountered this before and would appreciate any info from the forum.

[Lee B]

I believe all Federal Income Tax Withheld is treated the same just like W-2 withholding.

An employee can bump up their FWH in the the last several paychecks of the year, the IRS ignores when it was withheld.

[Margaret CPA in OH]

Before my husband retired in 2016, I always calculated my SE tax and had that withheld from his last paycheck.  Since then, I determine the same as well as any additional income tax that we might owe and have it withheld from my RMD at end of year.  I like how easy it is.

[mcbreck]

If this was the case, wouldn't the tax software automatically make such an adjustment? You don't get a benefit if you make all your distribution in the first quarter.

[Christian]

This pretty much confirms the point. I note he has been paying quarterly installments for some time but will be drawing a MRD this year so in estimating his tax for next year I will be mindful that should he incur a penalty in future related to underpayment of quarterly estimated I can add his annual year end payment to his other quarterly payments. Good to know. 

[Margaret CPA in OH]

What adjustment would be needed?  If the tax was withheld from whatever source, it is deemed evenly withheld throughout the year (see cbslee reply).  I don't make estimated payments as all tax is withheld.  Am I missing the point of your comment?  Anything is likely!

[Gail in Virginia]

I don't think there is an "adjustment."  Withholding taxes are treated differently on the 2210 than estimated tax payments.  Estimated payments are counted in the quarter they are paid; withholding is treated as though it is paid evenly through out the year regardless of when the income was received or the tax was withheld.  I use my Christmas "bonus" this way so that the withholding on my December check will cover the extra payment for any other income during the year - profits, dividends,stock sales, etc.  Sounds like what you do, Margaret.  I think Christian is just saying that he can adjust what he has his client pay in estimated taxes by having a larger amount paid in from the RMD in December. 

[Christian]

I myself was hit with a penalty for underpayment of estimated tax one year. If you consider a withheld payment in December as having been paid throughout the year would not a three month amount of the December withholding be credited along with your quarterly estimate to compute an underpayment or overpayment for that quarter ? That is what I am getting at.

[TexTaxToo]

Yes, you can treat the withholding as having been paid in four equal installments corresponding to the four "quarterly" periods.

Note that you do have the option of treating withholding as being paid when actually withheld (see box D in part II of Form 2210).  This can be beneficial, for instance, if the RMD was taken earlier in the year, and spreading it out would result in underwithholding for that period.

 

[Christian]

You have answered my question completely. This is the first time I have needed to address this matter as most folks cover their tax due through W-2 or 1099-R withholding monthly. Thanks for all the input too all.