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This post is an extension of Rick’s and Richard’s recent posts regarding taxes in retirement.
A recurring issue I dealt with as a tax preparer was calculating a (unpleasant) surprise the first year that someone retired. While working, the employee typically gets a paycheck with adequate tax withholding. When he leaves the job behind for the greener pastures of retired life, things can get a little more complicated. Now, instead of a single W2 to deal with, there may be forms from Social Security, pension(s), IRA distribution(s), and if they’re unlucky enough to have a commission hungry financial rep, multiple forms from annuities and K1s. If married, the forms may double in number. It was also very common for people not to realize some of their SS could be taxable.
So this is a cautionary post for those approaching retirement. Schedule an appointment with your tax preparer, or if you are a DIYer, use one of the tax calculators, or prepare a dummy tax return on your software in order to calculate your approximate tax liability.
Especially if there are lots of 1099s, I find it easier to not do any withholding, and instead arrange quarterly estimates for both federal and state taxes. I put these on autopilot (direct debits) from my checking, though many people prefer doing it the old fashioned way, by writing checks and mailing them in each quarter.
For the past seven years I have paid my quarterly taxes via one of my inherited IRAs. The withdrawal is set up so the entire check goes to the IRS. Since that account will run dry next year I am planning for my small pension to go entirely to the IRS. This will cover 75% of our tax liability. For the additional amount I most likely will take out a quarterly amount directly from my traditional account and have 100% go directly to the IRS.
I think this is the easiest way to attack the problem. I don’t have to know a mailing address for the IRS, nor go to an IRS website. Vanguard takes care of the entire process. For my part it takes maybe 2 minutes of my time.
Dan, great thoughts on a topic that is a big change for many of us. When I first started consulting at 60 my income was not regular, and I used form 2210 to annualize my income to prevent an underpayment and penalties/interest. My income varied from year to year, especially during Covid, so the safe harbor method (pay 100% of previous year’s tax) wasn’t always attractive. It gave me an appreciation for the challenges self-employed taxpayers face.
Oh boy, self-employed tax returns can be challenging for us preparers as well. I recall a client who struck out on his own. He was a highly skilled carpenter but had no clue (or desire to learn) how to keep business records. When he decided to go into the food-truck business, I suggested he find an accountant/tax person with experience doing restaurant tax returns. I did not need the aggravation.
Good thoughts in your article Dan.
My preference to make estimated payments is using IRS Direct Pay. No IRS personal account, no login, immediate online confirmation of the payment and amount is drafted from my bank account. Typically all the information you need to use IRS Direct Pay is found on your immediate prior year 1040 tax return assuming you have already filed the immediate prior year return (if not filed then you can typically use the year last filed).
As for the amount of the current year estimated payments I like to use the prior year tax safe harbor amount which is 100% of your prior year tax (or 110% if your prior year adjusted gross income was $150K or more) paid in equal quarterly payments.
If my needed current year tax payments are small I have just paid the entire year estimated taxes in the first quarter. If I am making quarterly safe harbor estimated tax payments I will project my current tax late in the current year and play the game of how close to zero tax will I owe when I file my return by adjusting the final quarterly payment but I usually do not pay less than the safe harbor amounts in a timely manner.
As you know the 2026 third quarter ES payment is due 9/15/2026 is less than a month away.
I would also note for those who insist in mailing estimated payments the postal service postmark dating has changed in 2026.
The IRS “timely mailed, timely filed” mailbox rule itself has not changed under the law, but a U.S. Postal Service (USPS) rule update means machine postmarks now reflect when mail is first processed at a regional sorting facility rather than when it was deposited, risking delayed postmark dates for paper tax filings.
Even before the USPS change if the IRS did not deposit your check by the due date you often have a argument you do not want with the IRS computer and if the check is lost then your certified mail return receipt only proves that you mailed something to the IRS, not necessarily a check. I try hard to not mail any checks, I just have seen to many things go wrong.
I hope my thoughts help.
Bill
Bill, thanks for the great information. I have also used IRS Direct Pay with no issues. I also enjoy playing the “how close to zero” game with our tax return. If I owe $1,000 or less at tax filing I consider it a win.
Funny. For tax year 2025, I arranged for four $300 quarterly payments. When the new senior deduction was signed into law, I canceled the remaining two estimates. My refund for the year ended up being exactly $600, the amount of the first two estimates. I could not do that again no matter how hard I try.
William, thanks for your outstanding elaboration on this subject. Regarding mailing a check versus using IRS Direct Pay. There remain taxpayers out there who don’t trust anything internet, and insist on using snail mail. I have processed thousands of tax returns and never had any internet related issues. I cannot say the same where human hands are involved; sometimes its hands at the post office, sometimes hands at the IRS, frequently it was the hands of the taxpayer.
Here in Michigan, the state has totally messed up their tax collection system with a “system upgrade.” Thousands of taxpayers, including myself, received notices of short payment on estimated taxes paid electronically or by check. Penalties and interest were accessed and refunds were not paid. This is still unresolved for the 2025 tax year.
Shame on Michigan, Harold. If there is a silver lining to this situation, it is that the state will pay you interest on the delayed refund. If AI is to be believed, the current rate is 7.85%.