Quarterly Taxes and Social Security payments

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Colorado Guy
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Joined: Sun Nov 05, 2017 1:57 pm

Quarterly Taxes and Social Security payments

Post by Colorado Guy »

I may have found the answer already, but am double checking with the experts. Am wanting to avoid penalties.

This year I will have W-2 income, 1099 income, and Social Security income. I know, come September, I will have to pay quarterly taxes on the 1099 income. In addition, I just received $12k payment from Social Security, with no taxes withheld. For future Social Security payments, I intend to have the federal taxes withheld, as there is a special form to submit to SS to do that.

From reading the 1040ES form, and from https://smartasset.com/retirement/color ... lHyNmnL7fl, it appears my 2020 federal taxes will increase approx $3k from the above non taxed SS payment.

From a previous poster/thread:
FireAway wrote: Wed Jan 23, 2019 3:44 pm There is generally a penalty and back interest owed for underwithholding. However, you don't have to pay the penalty if:
1) you owe less than $1000 additional (which seems to be the case here), or
2) your withholding was at least 90% of of your total tax bill for this year (you probably won't make this) or
3) your withholding was at least 100% of your taxes for the previous year ( you might hit this, if this is your first year with Lyft)

The way to avoid under withholding is to pay quarterly estimated taxes.
So, am I correct that I should pay quarterly taxes on both the 1099 income as well as the non-taxed Social Security benefits?

State taxes will increase a bit as well, so this would be mirrored on the state too.
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arcticpineapplecorp.
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Re: Quarterly Taxes and Social Security payments

Post by arcticpineapplecorp. »

why do you assume a SS payment (lump sum) is non taxable? Whether it is or not depends upon your total income. Other income can make part of your SS taxable, but only up to 85% of SS taxable.

source: https://www.google.com/search?client=fi ... 02&dpr=1.5

So you should probably do a dummy tax return to find out what your tax obligation might be. Then pay that amount accordingly.

what do you mean, "come September I will have to pay quarterly taxes on the 1099 income"? When was the 1099 income received? If recently, then yes. But if you received it earlier in the year, you should have been paying quarterly taxes all along:
4/15/2020
6/15/2020
9/15/2020
1/15/2021

source: https://www.google.com/search?client=fi ... taxes+2020

you can go to taxcaster to get a rough estimate of what you owe : https://turbotax.intuit.com/tax-tools/c ... taxcaster/

but if 1099 income, are there deductions/expenses you can use to reduce your income somewhat? You'll be paying the employer's contribution and the employee's contribution of medicare/social security tax in the form of self employment tax (around 12.4%) but get a deduction of half of self employment tax as well.

source: https://www.calcxml.com/do/self-employm ... tor?skn=73
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FiveK
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Re: Quarterly Taxes and Social Security payments

Post by FiveK »

Colorado Guy wrote: Mon Jul 20, 2020 10:45 am I may have found the answer already, but am double checking with the experts. Am wanting to avoid penalties.

This year I will have W-2 income, 1099 income, and Social Security income.
Could you set your W-2 withholding to meet your total lax liability?
Broken Man 1999
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Re: Quarterly Taxes and Social Security payments

Post by Broken Man 1999 »

FiveK wrote: Mon Jul 20, 2020 12:28 pm
Colorado Guy wrote: Mon Jul 20, 2020 10:45 am I may have found the answer already, but am double checking with the experts. Am wanting to avoid penalties.

This year I will have W-2 income, 1099 income, and Social Security income.
Could you set your W-2 withholding to meet your total lax liability?
If you are taking TIRA distributions, you would receive a 1099R.

DW and I have two SS benefits, and two TIRA distributions, generating our 1099R forms.

We don't have any taxes removed from our SS, instead as we have TIRA distributions, we just have Vanguard send our taxes as we go thru the year.

Obviously if your 1099 is not for TIRA distributions, well, never mind! :D

A great taxcaster is this one (pay no attention to the url name, it does taxes very well):

https://www.mortgagecalculator.org/calc ... ulator.php

I use it a couple of times a year to make sure we are on track to cover our taxes.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
btenny
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Re: Quarterly Taxes and Social Security payments

Post by btenny »

I suggest you do a trial 2020 tax return on turbo tax or other tax program in September to see what you owe. Then if you owe some tax tell your employer (via form W4) to do a one time extra tax deduction from your payroll check for November or December. Yes it will reduce you pay for that month but you will avoid the quarterly tax mess and be 100% compliant tax wise.

Good Luck.
Topic Author
Colorado Guy
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Joined: Sun Nov 05, 2017 1:57 pm

Re: Quarterly Taxes and Social Security payments

Post by Colorado Guy »

Appreciate the intel, thank you.
FiveK wrote: Mon Jul 20, 2020 12:28 pm Could you set your W-2 withholding to meet your total lax liability?
It is too late to withhold more via W-2s, or else I would do that for sure.
arcticpineapplecorp. wrote: Mon Jul 20, 2020 11:21 am So you should probably do a dummy tax return to find out what your tax obligation might be. Then pay that amount accordingly.

what do you mean, "come September I will have to pay quarterly taxes on the 1099 income"? When was the 1099 income received? If recently, then yes.

you can go to taxcaster to get a rough estimate of what you owe : https://turbotax.intuit.com/tax-tools/c ... taxcaster/

but if 1099 income, are there deductions/expenses you can use to reduce your income somewhat? You'll be paying the employer's contribution and the employee's contribution of medicare/social security tax in the form of self employment tax (around 12.4%) but get a deduction of half of self employment tax as well.

source: https://www.calcxml.com/do/self-employm ... tor?skn=73
Good points. Yes, the 1099 income was received recently, after June 15, so this is current. And you are correct, there will be expenses I can deduct from the 1099 income. However, my initial question was regarding the untaxed SS lump sum. Oh, and no TIRA distributions, at least not yet.

A dummy return that includes all 3 income sources would let me know the net tax deficiency for this quarter. Having never submitted quarterly tax payments before led to my question on what to include (such as the SS lump sum). I did a quick calculation using https://smartasset.com/retirement/color ... 1IQcGn3lPV to come up with the $3k tax number. As this was Colorado specific, it should be a good starting point. Thank you for your links. I will try the sources you list as well.
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FiveK
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Re: Quarterly Taxes and Social Security payments

Post by FiveK »

Colorado Guy wrote: Mon Jul 20, 2020 2:28 pm Appreciate the intel, thank you.
FiveK wrote: Mon Jul 20, 2020 12:28 pm Could you set your W-2 withholding to meet your total lax liability?
It is too late to withhold more via W-2s, or else I would do that for sure.
Ok, how about withholding from the SS payments remaining for this year?

The point about withholding is that if you have withheld enough to fit into one of the safe harbor rules (in other words, if you are not one "Who Must Pay Estimated Tax"), then the timing of the withholding during the year is irrelevant and no estimated payments are needed.
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Colorado Guy
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Re: Quarterly Taxes and Social Security payments

Post by Colorado Guy »

FiveK wrote: Mon Jul 20, 2020 5:32 pm
Colorado Guy wrote: Mon Jul 20, 2020 2:28 pm Appreciate the intel, thank you.
FiveK wrote: Mon Jul 20, 2020 12:28 pm Could you set your W-2 withholding to meet your total lax liability?
It is too late to withhold more via W-2s, or else I would do that for sure.
Ok, how about withholding from the SS payments remaining for this year?

The point about withholding is that if you have withheld enough to fit into one of the safe harbor rules (in other words, if you are not one "Who Must Pay Estimated Tax"), then the timing of the withholding during the year is irrelevant and no estimated payments are needed.
Good thought, although I am not sure I can hold back enough from the remaining SS payments. Definitely will look into this, though. Penalty free is my goal!
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Eagle33
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Re: Quarterly Taxes and Social Security payments

Post by Eagle33 »

Colorado Guy wrote: Mon Jul 20, 2020 6:07 pm
FiveK wrote: Mon Jul 20, 2020 5:32 pm
Colorado Guy wrote: Mon Jul 20, 2020 2:28 pm Appreciate the intel, thank you.
FiveK wrote: Mon Jul 20, 2020 12:28 pm Could you set your W-2 withholding to meet your total lax liability?
It is too late to withhold more via W-2s, or else I would do that for sure.
Ok, how about withholding from the SS payments remaining for this year?

The point about withholding is that if you have withheld enough to fit into one of the safe harbor rules (in other words, if you are not one "Who Must Pay Estimated Tax"), then the timing of the withholding during the year is irrelevant and no estimated payments are needed.
Good thought, although I am not sure I can hold back enough from the remaining SS payments. Definitely will look into this, though. Penalty free is my goal!
From SSA site Withholding Income Tax From Your Social Security Benefits
You can ask us to withhold federal taxes from your Social Security benefit payment when you first apply.

If you are already receiving benefits or if you want to change or stop your withholding, you'll need a Form W-4V from the Internal Revenue Service (IRS).

You can download the form or call the IRS toll-free at 1-800-829-3676 and ask for Form W-4V, Voluntary Withholding Request. (If you are deaf or hard of hearing, call the IRS TTY number, 1-800-829-4059.)

When you complete the form, you will need to select the percentage of your monthly benefit amount you want withheld. You can have 7, 10, 12 or 22 percent of your monthly benefit withheld for taxes.

Only these percentages can be withheld. Flat dollar amounts are not accepted.

Sign the form and return it to your local Social Security office by mail or in person.
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Topic Author
Colorado Guy
Posts: 94
Joined: Sun Nov 05, 2017 1:57 pm

Re: Quarterly Taxes and Social Security payments

Post by Colorado Guy »

Eagle 33,

Thx for the SS form link. The ever helpful SS folks failed to mention this on the initial consult. :!: Going to withhold 22% for the remainder of 2020, and then possibly lower it for 2021, depending upon how things go.
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