SS withholding

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ralph124cf
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SS withholding

Post by ralph124cf » Mon Aug 10, 2015 5:36 pm

We went to the SS office a couple of months ago to start my wife's spousal benefits.

When we came to the question about income tax withholding, I said that we wanted withholding at the 100% rate (to avoid needing to file quarterly estimated tax on other income). I was told that this would not be possible. I then asked for 50% withholding, and was told that this was not possible either, that the max withholding rate was 25%.

Does anybody know if this is true? If true, does anybody know why? I have certainly been able to have either W-2 or 1099 retirement income taxes withheld at pretty much any rate that I wanted (subject to the minimum 20% rate for lump sum withdrawals).

Ralph

earlyout
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Re: SS withholding

Post by earlyout » Mon Aug 10, 2015 5:38 pm

It may depend on the amount. SSA has to retain enough to cover Medicare premiums.

pshonore
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Re: SS withholding

Post by pshonore » Mon Aug 10, 2015 7:00 pm

The SS Form for withholding has four choices. I think they're 7%, 10% 15% and 25%. Those are the only options. And I would bet most people have none considering anyone with only SS income would owe no tax 99.9% of the time..

clydewolf
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Re: SS withholding

Post by clydewolf » Tue Aug 11, 2015 9:31 am

Remember this is the government.

Pshonore properly stated the tax withholding amount options from SS benefits: http://www.ssa.gov/planners/taxwithold.html

Anyway, 85% of the SS benefit is the most that can be taxed, so you receive at least 15% of the SS benefit tax free.

You can have more withheld from your other income sources to pay the tax that the money generates.

JW-Retired
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Re: SS withholding

Post by JW-Retired » Tue Aug 11, 2015 9:46 am

If you change your mind about how much to withhold you can file another W-4V form any time you wish.

http://www.irs.gov/pub/irs-pdf/fw4v.pdf
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Carl53
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Re: SS withholding

Post by Carl53 » Tue Aug 11, 2015 9:59 am

Livesoft suggested using direct pay in lieu of estimated quarterly payments in another thread.

http://www.irs.gov/Payments

Perhaps you could just make a payment in December via direct pay if it looks like you'll owe taxes.

The Wizard
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Re: SS withholding

Post by The Wizard » Tue Aug 11, 2015 10:34 am

Carl53 wrote:Livesoft suggested using direct pay in lieu of estimated quarterly payments in another thread.

http://www.irs.gov/Payments

Perhaps you could just make a payment in December via direct pay if it looks like you'll owe taxes.
Possible problem with using direct pay for quarterly estimated taxes if not spread evenly over the year.
Rule is that quarterly estimated payments must reflect income received in that quarter.
Doing something like a large Roth conversion in January and then paying additional taxes due on it in December following could subject you to a penalty...
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Carl53
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Re: SS withholding

Post by Carl53 » Tue Aug 11, 2015 11:04 am

The Wizard wrote:
Carl53 wrote:Livesoft suggested using direct pay in lieu of estimated quarterly payments in another thread.

http://www.irs.gov/Payments

Perhaps you could just make a payment in December via direct pay if it looks like you'll owe taxes.
Possible problem with using direct pay for quarterly estimated taxes if not spread evenly over the year.
Rule is that quarterly estimated payments must reflect income received in that quarter.
Doing something like a large Roth conversion in January and then paying additional taxes due on it in December following could subject you to a penalty...
You may be right on this, but with it I do not see where you have to fill out the estimated tax form at all. I looked at the instructions for filing 1040 line 64-65. Since direct pay may be used to make payments at anytime, estimated taxes or otherwise, it is not clear that you ought to include the payment in either of those lines. Of course if you do not you are probably not going to like the outcome.

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HueyLD
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Re: SS withholding

Post by HueyLD » Tue Aug 11, 2015 11:13 am

Carl,

You may want to review instructions for line 79 of form 1040.

pshonore
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Re: SS withholding

Post by pshonore » Tue Aug 11, 2015 11:20 am

The IRS will generally include all payments you made when processing your return. Tax withheld is assumed to be evenly made throughout the year, since the IRS has no idea of when it was withheld. Estimated payments are "credited" as received. If the total tax doesn't match the payments throughout the year by quarter and you didn't meet a safe harbor, there may be penalties, unless you can demonstrate income fluctuations.

NoVa Lurker
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Re: SS withholding

Post by NoVa Lurker » Tue Aug 11, 2015 11:22 am

I don't see how SS withholding is particularly advantageous, vs. quarterly estimated payments. Quarterly estimated tax "filings" are not required; you just pay.

To be clear, you can use a worksheet to estimate what you owe, but you don't actually file the worksheet. In this respect, our state (Virginia) works the same as federal. You can pay online very easily (using the EFTPS site for federal).

Here's the publication for federal: http://www.irs.gov/pub/irs-pdf/f1040es.pdf

I don't even use the worksheet anymore. I just make rough-ballpark federal and state payments every quarter, and it takes me about 10 minutes each time, 4 times a year. I over-estimate so we won't owe any penalties, and then we get it back with a refund every year. Quick and easy.

Spirit Rider
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Re: SS withholding

Post by Spirit Rider » Tue Aug 11, 2015 11:47 am

If some of this "other income" is from an elective distribution and/or a RMD from taxable retirement plans, you can have tax withholding from those.

While qualified plans may have restrictions similar to SS, my IRA allows 99% of any distribution to be tax withholdings. So I take a distribution on December 16th of each year to cover any shortfall in my tax liability for the year. As has been mentioned the IRS treats tax withholding as having been equally credited during the year.

Ron
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Re: SS withholding

Post by Ron » Tue Aug 11, 2015 2:10 pm

Spirit Rider wrote:While qualified plans may have restrictions similar to SS, my IRA allows 99% of any distribution to be tax withholding's. So I take a distribution on December 16th of each year to cover any shortfall in my tax liability for the year. As has been mentioned the IRS treats tax withholding as having been equally credited during the year.
I/we do the same.

- Ron

mjdaniel
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Re: SS withholding

Post by mjdaniel » Tue Aug 11, 2015 2:46 pm

I also pay a sizeable chunk of my tax bill from an end of year IRA distribution. My first social security check arrives tomorrow. Since I have not gotten used to the income yet, I just mailed a W4V today,(after reading this post), to hold 25% of my monthly SS. It will not cover my total liability for the year, but it will make a dent and it is convenient. I know it is my money, but it feels like free income at this stage of my life.

ralph124cf
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Re: SS withholding

Post by ralph124cf » Tue Aug 11, 2015 3:33 pm

Spirit Rider wrote:If some of this "other income" is from an elective distribution and/or a RMD from taxable retirement plans, you can have tax withholding from those.

While qualified plans may have restrictions similar to SS, my IRA allows 99% of any distribution to be tax withholdings. So I take a distribution on December 16th of each year to cover any shortfall in my tax liability for the year. As has been mentioned the IRS treats tax withholding as having been equally credited during the year.
Hi Spirit.

I knew that W-2 withholdings were treated as being paid evenly throughout the year, but I didn't realize that the same was true for single payment withholding from a tax deferred account. My goal was simply to not have a great many small 1099-R withholding numbers to deal with. It looks like I can actually stop SS withholding and simply take one large IRA distribution late in the year when I have a good idea of what my taxes will be, and have that amount withheld from the distribution.

Ralph

tomd37
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Re: SS withholding

Post by tomd37 » Tue Aug 11, 2015 3:58 pm

NoVa Lurker,
With all the identity theft and submission of fraudulent returns happening over the past two years, you might want to consider owing the federal government a small amount rather than getting a refund (although I suspect your refund might be small also) so it might not be important to you.

I volunteer in the AARP Foundation Tax Counseling for the Elderly (TCE) program and we are seeing an increasing number of returns being rejected as a result of the taxpayer or spouse SSN being stolen and used on a fraudulent return submitted earlier. Saw one case last year where a $9,000 refund was held up because of the SSN being used by a thief. I suspect the problem has not yet been resolved. Remember one a couple of years ago that took twelve months to get the refund, but maybe the IRS is faster now.
Tom D.

tomd37
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Re: SS withholding

Post by tomd37 » Tue Aug 11, 2015 4:00 pm

Ralph,
I have been doing for years exactly what you say. I take my RMD in November each year and have about 11% withheld for federal tax and I usually end up owing less than $100 on my federal return.
Tom D.

Spirit Rider
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Re: SS withholding

Post by Spirit Rider » Tue Aug 11, 2015 5:26 pm

ralph124cf wrote:Hi Spirit.

I knew that W-2 withholdings were treated as being paid evenly throughout the year, but I didn't realize that the same was true for single payment withholding from a tax deferred account. My goal was simply to not have a great many small 1099-R withholding numbers to deal with. It looks like I can actually stop SS withholding and simply take one large IRA distribution late in the year when I have a good idea of what my taxes will be, and have that amount withheld from the distribution.

Ralph
Since you originally wanted the SSA to withhold 50%, it might make sense to do the max 25% anyway. That certainly wouldn't be over your estimate and it would leave less to accomplish with IRA distributions. I was referring to Fidelity which allows no withholding or 10% - 99%. You should check with your specific provider. Note: Distributions from employer retirement plans have different rules.

Also, don't wait until December 31st and think because your provider received your request it will happen that day. They are getting swamped by end of year requests. Most providers request you give them a minimum of a two week notice to accomplish this at the end of the year.

It is not like an IRA contribution, that if an ACH transfer is requested online by 4/15 or a mailed check is postmarked by 4/15 that you are good to go. If you request a distribution and withholding on Christmas and it actually happens the first business day after New Year's Day, you are on the hook for penalties because the distribution and withholding didn't occur.
Last edited by Spirit Rider on Tue Aug 11, 2015 5:32 pm, edited 1 time in total.

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Artsdoctor
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Re: SS withholding

Post by Artsdoctor » Tue Aug 11, 2015 5:30 pm

tomd37 wrote:NoVa Lurker,
With all the identity theft and submission of fraudulent returns happening over the past two years, you might want to consider owing the federal government a small amount rather than getting a refund (although I suspect your refund might be small also) so it might not be important to you.

I volunteer in the AARP Foundation Tax Counseling for the Elderly (TCE) program and we are seeing an increasing number of returns being rejected as a result of the taxpayer or spouse SSN being stolen and used on a fraudulent return submitted earlier. Saw one case last year where a $9,000 refund was held up because of the SSN being used by a thief. I suspect the problem has not yet been resolved. Remember one a couple of years ago that took twelve months to get the refund, but maybe the IRS is faster now.
Very, very good point, but sad. My FIL had so many medical expenses last year that we decided to take an extra 401k distribution from his retirement account with the intention of having a a total tax of zero. However, we were required to have a 20% tax withholding which amounted to over $13,000. We had to file for an extension because tax forms were missing and needed to be replaced (he had a large stroke which left all of his record-keeping in limbo). We recently filed the return but are still waiting on the refund . . .

Yet another reason to try to avoid tax refunds. Thanks for bringing a different, somber perspective to the table.

The Wizard
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Re: SS withholding

Post by The Wizard » Tue Aug 11, 2015 7:20 pm

tomd37 wrote:NoVa Lurker,
With all the identity theft and submission of fraudulent returns happening over the past two years, you might want to consider owing the federal government a small amount rather than getting a refund (although I suspect your refund might be small also) so it might not be important to you.

I volunteer in the AARP Foundation Tax Counseling for the Elderly (TCE) program and we are seeing an increasing number of returns being rejected as a result of the taxpayer or spouse SSN being stolen and used on a fraudulent return submitted earlier. Saw one case last year where a $9,000 refund was held up because of the SSN being used by a thief. I suspect the problem has not yet been resolved. Remember one a couple of years ago that took twelve months to get the refund, but maybe the IRS is faster now.
The thing is, the IRS doesn't correlate withholdings to SS numbers on their 1040s. They play like amateurs and just take the supplied data a fraudster puts on a 1040 as truth.
So it doesn't matter whether the real taxpayer is owed a refund or needs to pay more...
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pshonore
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Re: SS withholding

Post by pshonore » Wed Aug 12, 2015 12:04 am

The Wizard wrote:
tomd37 wrote:NoVa Lurker,
With all the identity theft and submission of fraudulent returns happening over the past two years, you might want to consider owing the federal government a small amount rather than getting a refund (although I suspect your refund might be small also) so it might not be important to you.

I volunteer in the AARP Foundation Tax Counseling for the Elderly (TCE) program and we are seeing an increasing number of returns being rejected as a result of the taxpayer or spouse SSN being stolen and used on a fraudulent return submitted earlier. Saw one case last year where a $9,000 refund was held up because of the SSN being used by a thief. I suspect the problem has not yet been resolved. Remember one a couple of years ago that took twelve months to get the refund, but maybe the IRS is faster now.
The thing is, the IRS doesn't correlate withholdings to SS numbers on their 1040s. They play like amateurs and just take the supplied data a fraudster puts on a 1040 as truth.
So it doesn't matter whether the real taxpayer is owed a refund or needs to pay more...
I don't believe the IRS gets detailed withholding data until they get their W2 copies. Same with 1099R withholding data.

The Wizard
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Re: SS withholding

Post by The Wizard » Wed Aug 12, 2015 7:50 am

pshonore wrote:
The Wizard wrote:
tomd37 wrote:NoVa Lurker,
With all the identity theft and submission of fraudulent returns happening over the past two years, you might want to consider owing the federal government a small amount rather than getting a refund (although I suspect your refund might be small also) so it might not be important to you.

I volunteer in the AARP Foundation Tax Counseling for the Elderly (TCE) program and we are seeing an increasing number of returns being rejected as a result of the taxpayer or spouse SSN being stolen and used on a fraudulent return submitted earlier. Saw one case last year where a $9,000 refund was held up because of the SSN being used by a thief. I suspect the problem has not yet been resolved. Remember one a couple of years ago that took twelve months to get the refund, but maybe the IRS is faster now.
The thing is, the IRS doesn't correlate withholdings to SS numbers on their 1040s. They play like amateurs and just take the supplied data a fraudster puts on a 1040 as truth.
So it doesn't matter whether the real taxpayer is owed a refund or needs to pay more...
I don't believe the IRS gets detailed withholding data until they get their W2 copies. Same with 1099R withholding data.
Correct, and my impression is that they don't get those forms functionally into their database until after the April 15th deadline.

Nonetheless, owing them a few hundred bucks sounds like a good idea for a couple of reasons. If you DO get hit by a fraudster getting a big bogus refund, at least you won't be inconvenienced. But I suspect the reject the second attempt to file a return on the same SS # regardless if there's a refund or payment due.
So if they don't accept my payment check for $250 dated April 14th, there's the potential for them to claim negligent late filing & payment.
So there's always something to worry about...
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Spirit Rider
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Re: SS withholding

Post by Spirit Rider » Wed Aug 12, 2015 8:21 am

The Wizard wrote:So if they don't accept my payment check for $250 dated April 14th, there's the potential for them to claim negligent late filing & payment.

So there's always something to worry about...
IRS taxpayer rights include "3. The Right to Pay No More than the Correct Amount of Tax". I don't see how they could charge you penalties for their failure to accept a legitimate return because of identity theft. It would seem to me that that is certainly a reasonable cause.

I think this only enhances your main point that owing at a least a small out of tax is better that a refund. Especially, when you have a large refund, waiting 6-9 months to get that refund because of identity theft would really be a bummer.

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