Effect of tax refund on estimated RMD taxes

[Loutrim]

I am trying to figure out how a tax refund this year affects any estimated RMD taxes for 2026. I just completed my 2025 tax return and have a refund of $3,400 thanks to the new standard deductions. All my current income sources should remain the same for 2026, so I will assume for this example that my refund will be the same as well. However, I will be starting my RMD this year. If the expected refund amount exceeds the RMD estimated taxes, do I need to even make estimated payments? As a test, I modified my Turbo Tax 2025 return to add an additional retirement income source equal to my RMD as if this was my 2026 tax return. The end result is a refund of approx $1400 instead of the $3400. Does the IRS expect me to make quarterly payments for the RMD tax and then refund it to me next year, or can I just skip the quarterly estimated payments altogether? Very confusing!!

[guywong · Accepted solution]

If you will still be getting an overpayment with RMD, then you are not required to pay any estimated tax.

People pay estimated taxes to avoid having to pay underpayment penalties.  I have always recommended folks to use the 100/110% safe harbor rule below. 

If you often make charitable contributions, you should consider using your IRA to make the donations.  That is called QCD or Qualified Charitable Deduction.  QCD is counted toward RMD.  If RMD is $1,000 and you write a $200 check from your IRA and send it directly to the charity, you will only have to withdraw an addition $800. Only the $800 will be added to your income.

To avoid the IRS underpayment penalty, taxpayers can follow these strategies:

• Pay 90% of this year's tax: If your income is stable, estimate your tax for the current year and pay at least 90% of it throughout the year.
• Pay 100% (or 110%) of last year's tax: If your AGI was $150,000 or less, pay 100% of your last year's tax over four installments. If it was higher, pay 110%.
• Meet safe harbors: If you owe less than $1,000 after subtracting withholding and credits, you're automatically safe.

These strategies can help ensure that taxpayers pay enough taxes throughout the year to avoid penalties. It's important to stay compliant with tax laws and understand the rules to minimize unnecessary costs.
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[Loutrim]

Thank you for the response. That's what I was hoping to hear. 👍🏻 

[KrisD15]

If you are getting a Federal refund, that will not count as income next year, so a Federal refund will not affect your over-all income on your tax year 2026 returns.

Additionally, a state refund will not count as Federal income the following year if you used the Standard Deduction, rather than Itemizing Deductions, on your tax year 2025 Federal return. (And it never counts as state income on a state return). 

So if you are worried about owing Federal tax next year on a Federal refund you get this year, no, that will not be added as income next year. It is the excess tax you paid in 2025. 

State refunds are a little different since a person could claim state tax paid on their Federal return as a deduction and then get some of that state tax back. (Because we do the Federal Returns BEFORE the state returns). But "state tax paid" is only claimed as a deduction on a Federal return using Schedule A "Itemized Deductions". 

If you use the Standard Deduction on your 2025 return, neither state nor Federal refunds matter the following year.