IRA distribution withholding in 2019 for 2018 tax year -- did I error?

[RAUL1208]

In late December 2018 I somehow got an infection and had to be in the hospital for several days. As I was incapacitated, I didn't have an opportunity to estimate my 2018 tax year taxes before the year ended. I admit I put it all off - taxes are not fun! I usually have a prior year balance that I apply. However, I found out recently that I did not withhold enough in IRA distributions for 2018. As such, I have a taxes due balance for the 2018 tax year. However, in order to cover my large (at least to me) health insurance deductible I did withhold a large amount to ensure that I did not owe a balance in 2019. Can I apply my January 2019 withholding to avoid penalties and interest for 2018 because I did not withhold enough last year (in 2018)? I think you can fund IRAs or send a check to cover taxes until April of the following tax year, so I was just curious if the same concept applies. Any help greatly appreciated.

[Critter]

No ...  withholdings are only used in the year and for the year they are deducted from the paycheck.   

[RAUL1208]

Thanks for the reply but I'm still confused. My only income for 2018 was from an early IRA distribution (before age 59 1/2). I had a professional job but I had to leave in 2017 to take care of my elderly parents who both have chronic health conditions and can't really take care of themselves (in case anyone is wondering).

Apparently I did not withhold enough in 2018 and thus owed for taxes. However, in January 2019 I requested excess withholding (let's say 35% of distributed proceeds as an example) to cover both the 2018 distribution taxes and the January 2019 distribution taxes and 10% penalty. However, my brokerage statement shows the 2019 withholding only for 2019 with nothing showing for 2018. So did I mess up in not withholding in the 2018 calendar year because the 2019 excess withholding I did in January 2019 cannot be applied to 2018 tax year? I wanted my January 2019 excess withholding applied to cover 2018 taxes due and I was going to request another excess withholding IRA distribution next week to cover taxes for the 2019 tax year.

[dmertz]

Taxes withheld in 2019 apply to your 2019 tax return, not to your 2018 tax return.  To have money from an IRA distribution made in early 2019 apply to your 2018 tax return you would have to have had the IRA distribution paid to you and then used by you to make a 4th quarter estimated tax payment (Form 1040-ES); tax withholding and estimated tax payments are applied differently.

Presumably your large amount of tax withholding in January 2019 will cover your tax liability for 2019.  If it won't, though, unless your IRA custodian can process an IRA distribution today, December 31, 2019 (or you don't want the likely increase in your taxable income for 2019), you'll want to have the distribution paid to you in 2020 and by January 15, 2020 use the money to make an an estimated tax payment for the 4th quarter of 2019.  However, estimated tax payments do not reduce the amount of underpayment for earlier quarters of the year, so while the estimated tax payment will reduce or eliminate any further increase in 2019 underpayment penalty, it will not reduce any underpayment penalty for the earlier quarters the way that tax withholding before the end of 2019 would.

Regardless with what you do for 2019, you are stuck with the underpayment penalty for 2018 if your tax withholding in 2018 and any estimated tax payments for 2018 where not sufficient or timely to avoid the penalty.

[RAUL1208]

That's what I was afraid of. I had planned and budgeted to cover 2018 taxes in December 2018 by making an extra withholding to cover 2018 taxes but since I was in the hospital with all the medicine I was on I guess it just slipped my mind during the last days of 2018. Imagine my surprise when in estimating my 2019 taxes I found out that I had inadvertently underpaid 2018 taxes. Now I am really, really nervous about all the penalties and interest I'm now facing. The only good news is that I only underpaid taxes by around $1,500. I've been self-employed in the past and have done quarterly tax payments, but these IRA distributions are just new to me. I really, really appreciate your explanation and reply. Very helpful. It's not your fault, but now my day is ruined because all I'll be thinking about is all the IRA mess I'm now facing. Anyway, have a great New Year to you and everyone else here.