Pay-as-you-go tax system

[johnsmy]

My wife and I are 62 years old and both of us recently retired.  She started collecting a monthly pension of $700 in January and is not having any federal or state taxes being deducted from her monthly check.  I recently retired from a high paying job and started a part time job earning $11/hr. I work about 24 hours/week and also have no taxes being deducted from my checks.

I know the tax system is pay-as-you-go.  Based on some "back of the napkin" calculations, I figure our gross earnings for the year will be about $150,000 and we will owe about $17,000 in federal taxes.  With my high paying job I have already paid about $26,000 in federal taxes this year, meaning we should get a refund next year of about $9,000.

My question is:  Is it acceptable to continue to not have taxes taken out of my wife’s pension or my checks from the part-time job or do we need to have a small amount taken every check in order to continue to pay-as-we-go” for the rest of the year?

[VolvoGirl]

Yes you can do that.   You can cover all the other income with withholding from your work and pension.  Now next year when your don't have the high paying job you may need to have withholding taken out from your part time job and her pension.  

[xmasbaby0]

And...you mention that you both retired at 62 but did not mention if you have begun receiving Social Security benefits.   Based on the amount of income you do mention, your spouse's pension and your part-time job will only yield an income of around $20 to $21K per year.    Or will you both be collecting SS?   Will you be taking any distributions from an IRA or 401k?  Etc. etc. etc.???

You need to file a federal return if half your Social Security plus your other income is

Single or Head of Household      $25,000

Married Filing Jointly                  $32,000

Married Filing Separately            $0

[fanfare · Accepted solution]

IRS requires you to establish your Required Annual Payment for the year and pay as you go.

You can base your estimate on prior year's tax , or 90% of this year's tax, whichever is smaller.

If you know you will get a refund based entirely on withholding alone, you have thereby satisfied the 90% rule.

There will be no penalty.

@johnsmy