As a retiree and beneficiary of an annuity, do I have to pay 90 percent of taxes by Jan. 15?

by Alan M. Schapire, CPA | Dec 21, 2017
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I am a retiree. I pay my taxes using the estimate quarterly tax forms. In 2017, we had some extra income from being the beneficiary of an annuity. A few years ago I read that you need to pay at least 90 percent of taxes due April 15 via estimated tax to avoid a penalty. Does that mean I need to have sent in the 90 percent by Jan. 15, or can I make additional payments up until I send in my tax forms for 2017 in April?

Generally speaking, you will avoid a penalty for underpayment of estimated taxes if you owe less than $1,000 of tax after subtracting amounts withheld and estimated tax payments, or if you have paid/withheld at least 90 percent of the tax for the current year or 100 percent of the tax shown on your prior year tax return. These are known as safe-harbor thresholds. (The 100 percent threshold increases to 110 percent for higher income taxpayers.)

Estimated tax payments are due quarterly on April 15, June 15, Sept. 15, and Jan. 15, or the next business day after those dates if the date falls on a weekend or legal holiday. Payments made after the Jan. 15 (fourth quarter) payment will reduce your tax liability but will not be taken into account when calculating an under-estimate tax penalty. If you do not fall within one of the safe-harbor thresholds, I recommend that you increase your Jan. 15 estimated tax payment or make an additional estimated tax payment by Jan. 15.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Alan M. Schapire, CPA, is a principal with Convergent Financial Strategies LLC in Wayne, Pa.

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The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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