IRA Withdrawal and Tax Payment

[dazimi]

Hello,

One of my relatives is a retired senior, living on her social security only.  Her income tax payment has always been closing to none.  Last year she withdrew her IRA and bought a very small one-bed condo.  She received 1099-R and TurboTax calculated her tax return for 2021 is $16,000 and her ES for each quarter of 2022 is $4000.  She cannot afford that payment.  What does she do?   What about $4000 ES?  She surely won’t have that income in 2022.  How to eliminate ES?  Many thanks for any help.

[Affordabletaxes2021]

How Much did she receive in the distribution? The IRS does offer monthly payment plans they could set up directly at IRS .gov. 

[SweetieJean]

Unfortunately, some taxpayers misunderstand the 10% early withdrawal penalty exemptions as also applying to the regular taxes due on the distribution. They do not.

She won't have to do estimated tax payments for 2022 unless she plans to take another distribution. If she does, she can instead arrange to have taxes withheld from it.

[Hal_Al · Accepted solution]

Q. How to eliminate ES?  

A. Just don't mail them in.  It's optional.  TurboTax (TT) prepares the voucher (form 1040-ES)just in case you want to use them.  They are not required. 

Q.  She cannot afford that payment.  What does she do?  

A.  She requests a payment plan from the IRS. See below.

You say she is a retired senior.  If she was over 59.5, at the time of the withdrawal, there is no penalty, just tax.  For a $16K tax bill, it must have been a big withdrawal.  Part of the her problem was that, by having additional income  (the IRA distribution), most (up to 85%) of her social security became taxable.   

PAYMENT PLAN In order to sign up for a payment plan, you need to go to the File section of TurboTax, then when you get to the screen "<your name>, just one more step and we'll file your returns" select the Revisit link under "Here's how you chose to pay your taxes". Then on the screen "How would you like to pay your federal taxes?" you should see the last option listed as "I want to request an installment plan". 

. In addition to the interest, there are fees (lower  if you meet poverty guidelines). The fee drops more if you agree to direct bank debit.

The Turbotax help topic at this link explains how to set up a plan:

https://ttlc.intuit.com/community/tax-payments/help/can-i-set-up-a-payment-plan-for-my-taxes/00/2651...   

[fanfare]

 if you have a serious cash flow problem due to IRA distribution used for real estate, take out a Home Equity Loan on your new condo to pay income tax. It will be deductible.

Don't tell the loan officer that's why you want a loan.

[dazimi]

Many thanks Hal_Al.   Highly appreciated.  She is 75, single with no dependence.  One IRA 1099-R from a bank is $19,000 and another IRA 1099-R from a life insurance is Gross: $90,000 with Taxable: $77,000.  The only other income is SSA-1099 for $13,000.   Do you think 16K tax payment is about correct or something was overlooked in the calculation?  

[Hal_Al · Accepted solution]

Yes, $16K is correct.  $11K of her SS becomes taxable, so her taxable income is 77K + 19K + 11K -14K (std deduction) = 93K.  Look that up in the tax table and you get 16K(+/-)