Estimated Taxes Now that I am Retired

[mawindsor]

I expect I will not be charged a penalty for underpayment this year as I have received salary, bonus, and voluntary severance from my previous employment in 2023.  However, I am concerned about 2024 and future years.  I am withholding 10% of my SSA payments but my husband is not withholding any.  We do not anticipate taking any RMDs for at least two years.  We will have some interest and dividend income.  Capital gains are not predictable.  Our only large expenses currently are medical insurance, property taxes, and local vehicle registration and state income tax.  I assume that our current expenses will mean we will claim the standard deduction.  What will be the best way for me to calculate if I should make estimated tax payments to avoid penalty?  Thank you.

[rschule1 · Accepted solution]

Turbo Tax has a great App called TaxCaster which will estimate refund or tax owed. Simply go online to TaxCaster had enter information as needed.

[BettieG]

Hi @mawindsor!  Thanks for your great questions!

First, you can generally avoid the penalty if your total timely estimated payments and withholdings are greater than or equal to the lesser of:

90% of the total tax after credits for the current year, or 100% of the total tax after credits in the prior year

You can also avoid the penalty if the amount you owe is less than $1,000 as long as any estimated tax payments you made are timely.

Certain taxpayers have special rules for determining when they might owe an underpayment penalty:

• Farmers and fishers. If at least two-thirds of your income is from farming or fishing, you can avoid an underpayment penalty by paying at least 66.6% of the tax you owe for the current year by the estimated tax due date in January (usually January 15) of the following year, or if you file your tax return and pay all the tax you owe by March 1 of the following year.

• High-income taxpayers. If your adjusted gross income (line 11 of your 2021 Form 1040) is greater than $150,000 (or $75,000 if you're married and file a separate return from your spouse), you can avoid a penalty by paying at least 110% of your total tax in the prior year.

• Household employers. If you file Schedule H with your tax return to report wages paid to a household employee, you're not required to include household employment taxes in your penalty calculation if:

  • You didn't have federal income taxes withheld from wages, pensions, annuities, gambling winnings, or other income, and

  • You wouldn't be required to make estimated tax payments to avoid a penalty even if you didn't include household employment taxes in your estimated tax calculation

This article explains in further detail: What is Form 2210? https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-form-2210/L2z0haVWb

The best way to avoid an underpayment penalty in a future year is by ensuring that you meet one of the exceptions above.  Alternatively, you can use a tax calculator with your best estimates of your income during the year.  Here is one such calculator, which will be updated in the future for estimating future tax years.

I hope this is helpful!