Can estimated tax be covered by withholding?

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sonoferu
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Can estimated tax be covered by withholding?

Post by sonoferu » Wed Oct 14, 2015 9:50 am

Estimated tax is something new for me, it has always just been W2 income. My wife is retired from being a school administrator, and to earn a little extra, she started working this summer for a foreign student organization, finding host families and keeping tabs on the students throughout the school year. She gets paid a fee per student, and there is no withholding. I figure she will get about $8000 this tax year, meaning about $2000 income tax at our 25% marginal level. Rather than sending in quarterly, can I just increase my own withholding amount, so our total paid in during the year is enough to cover the entire tax amount? I have just learned about quarterly payments, and would rather just do extra withholding if that will work

kaneohe
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Re: Can estimated tax be covered by withholding?

Post by kaneohe » Wed Oct 14, 2015 10:24 am

Withholding should work fine.......actually even better than estimated tax since timing of the withholding is not critical as it is w/ est. taxes.
One thing to consider is the self -employment tax if "employer" is not paying it.....basically like the employer/employee parts of SS/medicare.
https://www.irs.gov/Businesses/Small-Bu ... care-Taxes.
If the school folks aren't withholding that, then you probably are responsible for that too so withhold enough for that also.

Castanea_d.
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Re: Can estimated tax be covered by withholding?

Post by Castanea_d. » Wed Oct 14, 2015 10:31 am

Yes. That is how I have done it for quite a few years.
You can certainly do it for 2016. This late in 2015, it may be hard to do for this year because you would have to raise your withholding quite a bit, but if your salary is sufficient to be comfortable with the reduced income, you could ask to have an extra $1000 withheld for the two months of November and December.

ResearchMed
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Re: Can estimated tax be covered by withholding?

Post by ResearchMed » Wed Oct 14, 2015 10:33 am

sonoferu wrote:Estimated tax is something new for me, it has always just been W2 income. My wife is retired from being a school administrator, and to earn a little extra, she started working this summer for a foreign student organization, finding host families and keeping tabs on the students throughout the school year. She gets paid a fee per student, and there is no withholding. I figure she will get about $8000 this tax year, meaning about $2000 income tax at our 25% marginal level. Rather than sending in quarterly, can I just increase my own withholding amount, so our total paid in during the year is enough to cover the entire tax amount? I have just learned about quarterly payments, and would rather just do extra withholding if that will work
Yes, withholding can be used instead of quarterly.

One big advantage, especially if someone has *already* missed a quarterly deadline, is that whereas quarterly payments are supposed to reflect the income as earned. That is, one can't make one big "4th quarter" payment without getting into some $ trouble - unless all income was in the 4th quarter.

However, ANY withholding is considered to be "equally paid throughout the year", no matter when/how paid.

Thus, for example, one could take an RMD (or any IRA withdrawal, keeping in mind age) and have *all* of it "withheld" as taxes (split between Fed and State if applicable), if that's needed to catch up with quarterly taxes that weren't timely paid.

Or one can "up" the employment withholding for the last few pay periods in similar circumstances.

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saltycaper
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Re: Can estimated tax be covered by withholding?

Post by saltycaper » Wed Oct 14, 2015 10:38 am

According to the IRS, yes:
Who Does Not Have To Pay Estimated Tax
If you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings. To do this, file a new Form W-4 (PDF) with your employer. There is a special line on Form W-4 for you to enter the additional amount you want your employer to withhold.
https://www.irs.gov/Businesses/Small-Bu ... ated-Taxes

Also, Pub 505, Ch 2 has more info on whether you need to pay estimated tax:
Who Must Pay Estimated Tax

If you owed additional tax for 2014, you may have to pay estimated tax for 2015.

You can use the following general rule as a guide during the year to see if you will have enough withholding, or should increase your withholding or make estimated tax payments.

General Rule

In most cases, you must pay estimated tax for 2015 if both of the following apply.

You expect to owe at least $1,000 in tax for 2015, after subtracting your withholding and refundable credits.

You expect your withholding and refundable credits to be less than the smaller of:

90% of the tax to be shown on your 2015 tax return, or

100% of the tax shown on your 2014 tax return. Your 2014 tax return must cover all 12 months.

Note. The percentages in (2a) or (2b) just listed may be different if you are a farmer, fisherman, or higher income taxpayer. See Special Rules , later.

...

Higher Income Taxpayers

If your AGI for 2014 was more than $150,000 ($75,000 if your filing status for 2015 is married filing a separate return), substitute 110% for 100% in (2b) under General Rule , earlier.

For 2014, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4.
https://www.irs.gov/publications/p505/ch02.html
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pshonore
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Re: Can estimated tax be covered by withholding?

Post by pshonore » Wed Oct 14, 2015 11:03 am

Is her employer withholding SS/Medicare? If not, she'll have to pay roughly 15.3% at tax time.

sonoferu
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Re: Can estimated tax be covered by withholding?

Post by sonoferu » Wed Oct 14, 2015 2:07 pm

Thanks all.
I thought it would be ok, and your comments confirm what I thought I was seeing at IRS about estimated tax
I can afford to take a withholding hit for the last 2 months, so it looks like I will be ok.
And yes I understand about SS/Medicare tax due as well

Browser
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Re: Can estimated tax be covered by withholding?

Post by Browser » Wed Oct 14, 2015 4:33 pm

When I found out about this, I stopped paying estimated taxes and have the amount needed to cover my taxes withheld from my retirement distribution at the end of each calendar year. However, my state wants estimated taxes to be paid. Since I wanted to get rid of the hassle, I just didn't do it and I pay my state tax when I file my return. I suppose they can get nasty about this, but so far I haven't had any trouble doing this for the last 3 years or so. But it's worth checking into.
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