Estimated tax for retirees.

In plain English

Estimated tax for retirees is the system of paying your income tax in four payments across the year when your retirement income does not have enough tax taken out automatically. Working people usually have tax withheld from each paycheck, but pensions, IRA withdrawals, investment income, and a portion of Social Security can arrive with little or no withholding. If you would owe a meaningful amount at tax time, the IRS expects you to pay as you go through quarterly estimated payments. You can also ask payers to withhold tax for you instead, which can replace the need to send estimates.

01Why it matters

If you retire and stop having tax withheld, you can get hit with an underpayment penalty at tax time even though you have the money sitting in your account.

02The math, step by step

Say a retiree expects to owe about $4,000 in tax on IRA withdrawals and investment income with nothing withheld. To pay as they go, they might send roughly $1,000 to the IRS each quarter on the published due dates. Under the statutory safe harbor (IRC section 6654), you generally avoid a penalty by paying the lesser of 90% of this year's tax or 100% of last year's (110% if your prior-year adjusted gross income was over $150,000, or $75,000 if married filing separately), and no penalty applies if you owe less than $1,000. The quarterly due dates are April 15, June 15, September 15, and January 15. These rules are statutory and not inflation-adjusted.

03What this is NOT

04Receipts

Every figure on this page is sourced to a primary document. Tap to open the original.