Safe Harbor Estimated Taxes for Surviving Spouse

[CelBar]

I'm doing my mother's taxes and trying to figure out her estimated taxes. My father died toward the end of 2023. So for 2023 my mother is filing a joint return as the surviving spouse. But for next year, 2024, she will be a single filer.

I suspect that she will probably have a higher taxable income, for various reasons having to do with RMDs, the lesser standard deduction, and some other investment related matters.

I'm trying to follow the 100% safe harbor rules for her estimated taxes. As I understand it, normally, one would just pay 100% of the current year's tax, in four payments, and that would protect one from penalities (even if my mother ends up owing more taxes than in the prior year).

However, in the IRS instructions for form 1040es (page 6), it states, in order to figure your prior years taxes as the basis for your estimated taxes: "If you filed a joint return for 2023 but you will not file a joint return for 2024, first figure the tax both you and your spouse would have paid had you filed separate returns for 2023 using the same filing status as for 2024. Then multiply the tax on the joint return by a fraction, the numerator being the tax you would have paid had you filed a separate return, over the total tax you and your spouse would have paid had you filed separate returns."

Having to refigure out my mother's taxes, as if she and my father had both filed separately in the past year would be a huge pain. Is this really necessary, in order to properly follow the safe harbor rules for estimated taxes? If so, why doesn't TurboTax do this for me? I thought this was the sort of thing TurboTax was supposed to help with? TurboTax knows my father died and my mother will be a single filer next year. But it doesn't seem to be following the stipulation I quoted from the IRS instructions.

[JohnB5677]

I'm very sorry for you loss.

There are several very good issues that you have brought up.

You're correct to be filling as Surviving Spouse.

Your Mom's income will be higher as an individual, but I can't be sure she will owe more taxes.

I'm going to start with the last item first.  Preparing a sample 2023 tax return.

• You can go online and set up a new TurboTax account.  
  • (Use a new ID and Password.  
  • You can then do your Mother's "What If" tax return at no charge.
• Prepare the sample tax return as single, and 
  • include her information and income 
  • plus what you expect will carry over from you Father. 
• This will help to resolve several of your issues:
  • You will prepare it a Single and get the lower Standard Deduction.
  • You will have included any carryover income from your Dad.
  • You will have accounted for any taxes that were withheld If you've already started to enter investment income, you can continue to add information by selecting [ + Add investment ] at the bottom of the page.

I'm sure you have this, but this is the IRS criteria for underpayment penalty

• Yes, you will make 4 equal estimated payments:
  • January 1 – March 31, 2024 - April 15, 2024
  • April 1 – May 31, 2024 - June 17, 2024
  • June 1 – August 31, 2024 - September 16, 2024
  • September 1 – December 31, 2024 - January 15, 2025

The underpayment penalty will be assessed if any of these apply:

• "If you don’t pay enough tax through withholding and estimated tax payments, you may have to pay a penalty."
• "You also may have to pay a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return."

To avid the under payment penalty:

• The amount you owe is less than $1,000, after subtracting withholding and refundable credits.
• You paid 90% of the tax that you owed for the current year.
• You paid 100% of the previous year tax, (110% for higher incomes).
• If your previous year's adjusted gross income was more than $150,000 you will have to pay in 110% of your previous year's taxes to satisfy the "safe-harbor" requirement.

"Typically, underpayment penalties are 5% of the underpaid amount, and they're capped at 25%. 

Underpaid taxes also accrue interest at a rate that the IRS sets annually."

To avoid this situation it is recommended that you adjust your W-4 with your employer or pay estimated taxes.

Underpayment of Estimated Tax by Individuals Penalty

Please contact us again with any additional questions.

[CelBar]

@JohnB5677 Thanks for the detailed reply. I guess my main question first, before I do anything else, is: Do I really have to do the "what if" (as you put it) tax return to figure the estimated taxes, in order to meet the safe harbor requirement of paying 100% of last year's taxes? Or, in a situation where a spouse dies, is it okay to base the estimated taxes on the past year's joint return, filed by a surviving spouse?

It's not really important for my mother, whether or not she accurately estimates what next years taxes will be (my parents taxes tended to fluctuate a lot in the past, based on a lot of factors). The point is just to avoid a penalty by meeting the safe harbor requirement.

[JohnB5677]

In that's the case you would base it on there 2023 joint tax return to be safe.

The guideline would be:

• You pay 100% of the 2023 tax, (110% for higher incomes).
• If your previous year's adjusted gross income was more than $150,000 you will have to pay in 110% of your previous year's taxes to satisfy the "safe-harbor" requirement.

[fanfare]

Based on the default calculation, to avoid penalty you have to make equal quarterly payments of "prior year's tax". or equal quarterly payment of "90% of tax", the latter being problematic if income varies from month to month

also there are rules for filing a different status in the two years .

The instructions should be consulted, since that complication has not been elucidated.