36:["$","$L37",null,{"category":"$38","relatedArticles":[{"id":"cG9zdDoyMTg3NDU=","databaseId":218745,"postId":218745,"author":{"node":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/04483497dbd73f712b504e401c9c7d22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":770,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxMzY=","children":{"nodes":[{"name":"Other","slug":"other-taxes","__typename":"Category"},{"name":"Tax Credits & Deductions","slug":"tax-credits-deductions","__typename":"Category"},{"name":"Tax Filing","slug":"tax-filing","__typename":"Category"},{"name":"Tax Planning","slug":"tax-planning","__typename":"Category"},{"name":"Tax Policy","slug":"tax-policy","__typename":"Category"}],"__typename":"CategoryToCategoryConnection"},"databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":{"pageInfo":{"offsetPagination":{"total":244,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$39","date":"2023-11-17T15:48:01","excerpt":"

\n","featuredImage":{"id":"cG9zdDoyMjAyNDM=","databaseId":220243,"altText":"A couple estimating how much they will have to pay in taxes.","date":"2023-11-17T15:38:53","fileSize":279476,"mimeType":"image/jpeg","modified":"2023-11-17T15:39:35","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2023/11/iStock-1393598855.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-11-17","readable":"November 17, 2023"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":{"url":"https://secure.gravatar.com/avatar/9fffe2eb35204e151b68731435d247c5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":{"expertise":"Financial Planning, Retirement Planning, Investment Planning, Tax Planning","__typename":"User_Additionalmeta"},"email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":38,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"aconde","__typename":"User"},"reviewedBy":null,"writtenBy":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/04483497dbd73f712b504e401c9c7d22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":770,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/taxes/how-can-estimated-taxes-be-paid","metaDesc":"There are multiple ways to approach paying estimated taxes. Here is what to know and how to approach it.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":5,"title":"How Can Estimated Taxes Be Paid?","__typename":"PostTypeSEO"},"slug":"how-can-estimated-taxes-be-paid","status":"publish","title":"How Can Estimated Taxes Be Paid?","uri":"/taxes/how-can-estimated-taxes-be-paid","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":"$3a","description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":"$3b","email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":"$3c","slug":"mark-henricks","__typename":"User"},"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":"$3f","description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":"$40","email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":"$41","slug":"arturo-conde-cepf","__typename":"User"},"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybToxMzY=","children":"$44","databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":244,"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":true,"contentBlocks":["

If you earn income that doesn’t have taxes automatically withheld, such as income from investments or self-employment, you may need to pay estimated taxes. Estimated taxes are pay-as-you-go tax payments individuals make throughout the year, typically quarterly, to cover their expected tax liability. The quarterly payment approach can help avoid underpayment penalties. However, instead of paying quarterly, you can also pay estimated taxes when you file your return, increase tax withholding from another source of income, or apply your refund to any balance due. Consider asking a financial advisor to walk through the process and help avoid penalties.

","

Estimated Tax Basics

","

You generally need to pay estimated taxes if you expect to owe at least $1,000 when you file your tax return. This includes income earned from self-employment, freelancing, side jobs, interest, dividends and capital gains. The IRS requires you to pay as you earn to ensure the government receives a steady stream of tax revenue, rather than getting a lump sum payment once a year.

","

It’s usually in your best interest to go along with this requirement. That’s because, if you don’t pay enough estimated taxes during the year, you may owe an underpayment penalty when you file your return. The IRS calculates underpayment penalties by charging interest on the amount underpaid. The interest rate it charges changes periodically, with the rate currently set at 8% annually.

","

Different Ways to Pay

","

While you have to pay, you have a few options for the way you make estimated tax payments:

","

Pay quarterly: Most taxpayers do this, sending in quarterly installments on April 15, June 15, September 15, and January 15. Each installment generally is equal to one-quarter of the total tax bill you expect. You can pay online, by phone, or by mail using Form 1040-ES.
Pay when filing: Instead of quarterly payments, you can pay your full estimated tax liability when you file your return by the April deadline. This increases your risk of penalties if you underpay, however.
Withhold from other income: If you have W-2 job income, you can increase your withholdings to cover estimated taxes on 1099 income.
Apply refund to balance: If you’re owed a refund, you can apply it to estimated taxes due instead of receiving a check.

","

Avoiding Underpayment Penalties

","

","

You can sidestep underpayment penalties even if you haven’t paid enough in estimated taxes to equal your total current tax bill. Do this by meeting one of the IRS safe harbor rules. For most taxpayers, this means paying estimated taxes equal to at least 90% of your current year tax liability or 100% of your prior year liability.

","

That is, if you owed $9,000 last year and have paid in $9,000 in estimated taxes for this year, you have met the safe harbor provision and won’t be subject to underpayment penalties, even if you owe more in taxes this year. You would also satisfy the safe harbor provisions if you paid $9,000 in estimated taxes this year and your current tax liability is no more than $10,000, since $9,000 is equal to 90% of $10,000.

","

Higher-income taxpayers have a different standard. If adjusted gross income (AGI) exceeds $150,000, they must pay at least 110% of their prior year liability.

","

An Estimated Tax Example

","

Consider a self-employed taxpayer who expects to earn $60,000 this year. They had no tax liability last year. To avoid underpayment penalties, they must pay at least 90% of their expected 2023 tax liability.

","

They calculate this will be about $13,500 based on their income and deductions. To meet the safe harbor, they must pay at least $12,150 during the year. That amount is equal to 90% of $13,500, which fulfills the IRS safe harbor provisions. They decide to pay quarterly installments of $3,037.50 each.

","

This helps avoid a penalty while providing a framework for budgeting tax payments over the year. If they owe any additional amount when filing their return, they can pay it by April 15.

","

Bottom Line

","

","

Paying estimated taxes is required for anybody who earns income from self-employment or another source that does not withhold taxes. Making quarterly payments of enough to meet the IRS safe harbor provisions helps avoid penalties. It also allows you to budget tax payments each year so you don’t face a big payment at filing time. However, you can wait to pay estimated taxes until you file your return if you are willing to pay the underpayment penalty. Other options include withholding more from another income source or allocating part of your refund to estimated taxes.

","

Tax Planning Tips

","$4b","

Photo credit: ©iStock.com/urbazon, ©iStock.com/MTStock Studio, ©iStock.com/Rockaa

"],"experts":{"name":"Jennifer Mansfield, CPA","topic":"Taxes","bio":"Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice.","imageUrl":"https://d31s10tn3clc14.cloudfront.net/imgs/jennifer-mansfield.png","email":"jmansfield@smartasset.com"},"link":"/taxes/how-can-estimated-taxes-be-paid","published":{"datetime":"2023-11-17","readable":"November 17, 2023"},"shareInfo":{"title":"How Can Estimated Taxes Be Paid?","origin":"/taxes/how-can-estimated-taxes-be-paid"},"isNewsArticle":false},{"id":"cG9zdDoyNDEwNjA=","databaseId":241060,"postId":241060,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1323,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTUwNg==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19506,"categoryId":19506,"link":"https://smartasset.com/tax-planning/articles","name":"Tax Planning","postCount":{"pageInfo":{"offsetPagination":{"total":80,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"tax-planning","ancestors":{"nodes":[{"name":"Taxes","slug":"taxes","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Taxes","id":"dGVybToxMzY=","slug":"taxes","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$4c","date":"2024-03-29T07:30:00","excerpt":"

\n","featuredImage":{"id":"cG9zdDoyNDExNTA=","databaseId":241150,"altText":"A woman files her tax return and learns that she paid the right amount of taxes during the previous year.","date":"2024-03-13T12:18:31","fileSize":31353,"mimeType":"image/jpeg","modified":"2024-03-28T17:25:05","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/03/iStock-1197483793-modified-24fa5cd3-79f6-4e90-8de4-68bffa5eace6.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-3-28","readable":"March 28, 2024"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":{"url":"https://secure.gravatar.com/avatar/9be66d92947dd5b190bf90987b5e85f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Patrick Villanova is an editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. His particular areas of focus include retirement, financial planning and investing. Patrick studied English at the University of New Hampshire and currently holds the Certified Educator in Personal Finance (CEPF) designation. \r\n\r\nPrior to joining SmartAsset, Patrick was a senior writer at MagnifyMoney, where he covered investing. His career began in journalism and included 11+ years at The Jersey Journal, where he covered sports and news as an editor. His work has appeared on Yahoo Finance, MSN, NJ.com, and The Star-Ledger. He lives in Portland, Oregon.","additionalMeta":{"expertise":"Retirement Planning, Social Security, Estate Planning, Taxes","__typename":"User_Additionalmeta"},"email":null,"firstName":"Patrick","fullName":"Patrick Villanova, CEPF®","lastName":"Villanova, CEPF®","name":"Patrick Villanova, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":308,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"pvillanova","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDU=","databaseId":145,"userId":145,"avatar":{"url":"https://secure.gravatar.com/avatar/5ae1da874ddac2010e70c7b0a0def3f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Michele is a practicing Certified Public Accountant with more than 20 years of experience. She has authored 15 books on topics including retirement, investing, real estate, financial recovery, budgeting, accounting, the stock market and more. She helps her clients gain financial stability and balance, navigate divorces and manage their businesses. She has taught business and accounting courses at multiple community colleges.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michele","fullName":"Michele Cagan, CPA","lastName":"Cagan, CPA","name":"Michele Cagan, CPA","postCount":{"pageInfo":{"offsetPagination":{"total":22,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcagan","__typename":"User"},"writtenBy":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1323,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"factCheckedBy":null,"secondEditor":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":{"url":"https://secure.gravatar.com/avatar/9fffe2eb35204e151b68731435d247c5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":{"expertise":"Financial Planning, Retirement Planning, Investment Planning, Tax Planning","__typename":"User_Additionalmeta"},"email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":38,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"aconde","__typename":"User"},"hideAuthor":true,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/taxes/tax-overpayment","metaDesc":"Getting a tax refund can seem like a financial windfall. But it means you've overpaid and given the government an interest-free loan.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":5,"title":"How to Avoid Overpaying Your Taxes","__typename":"PostTypeSEO"},"slug":"tax-overpayment","status":"publish","title":"How to Avoid Overpaying Your Taxes","uri":"/taxes/tax-overpayment","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":null,"editedBy":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":"$4d","description":"Patrick Villanova is an editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. His particular areas of focus include retirement, financial planning and investing. Patrick studied English at the University of New Hampshire and currently holds the Certified Educator in Personal Finance (CEPF) designation. \r\n\r\nPrior to joining SmartAsset, Patrick was a senior writer at MagnifyMoney, where he covered investing. His career began in journalism and included 11+ years at The Jersey Journal, where he covered sports and news as an editor. His work has appeared on Yahoo Finance, MSN, NJ.com, and The Star-Ledger. He lives in Portland, Oregon.","additionalMeta":"$4e","email":null,"firstName":"Patrick","fullName":"Patrick Villanova, CEPF®","lastName":"Villanova, CEPF®","name":"Patrick Villanova, CEPF®","postCount":"$4f","slug":"patrick-villanova-cepf","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDU=","databaseId":145,"userId":145,"avatar":"$52","description":"Michele is a practicing Certified Public Accountant with more than 20 years of experience. She has authored 15 books on topics including retirement, investing, real estate, financial recovery, budgeting, accounting, the stock market and more. She helps her clients gain financial stability and balance, navigate divorces and manage their businesses. She has taught business and accounting courses at multiple community colleges.","additionalMeta":"$53","email":null,"firstName":"Michele","fullName":"Michele Cagan, CPA","lastName":"Cagan, CPA","name":"Michele Cagan, CPA","postCount":"$54","slug":"michele-cagan-cpa","__typename":"User"},"factCheckedBy":null,"secondEditor":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":"$57","description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":"$58","email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":"$59","slug":"arturo-conde-cepf","__typename":"User"}},"category":{"id":"dGVybToxOTUwNg==","children":"$5c","databaseId":19506,"categoryId":19506,"link":"https://smartasset.com/tax-planning/articles","name":"Tax Planning","postCount":80,"slug":"tax-planning","ancestors":"$5e","parent":"$61","__typename":"Category"},"isModifiedBeforePublished":true,"contentBlocks":["

Getting a tax refund can seem like a financial windfall, but it means you’ve overpaid your taxes and given the government an interest-free loan. While some taxpayers prefer to receive a lump sum refund, others view tax overpayments as a missed opportunity to have their money work for them. That’s because the extra money paid to the IRS could be invested or saved throughout the year, generating interest instead of sitting idly in government coffers. Avoiding a tax overpayment often comes down to figuring out the correct amount that should be withheld from your paycheck.

","

A financial advisor with tax expertise can help you optimize your tax strategy and potentially save you money in the long run. Connect with a fiduciary advisor today.

","

How Do You End Up Overpaying Your Taxes?

","

Taxes are a complex and often daunting aspect of financial management. Many individuals find themselves inadvertently overpaying on their taxes due to a lack of understanding or attention to detail regarding their tax obligations. The common causes of overpayment can range from failing to adjust withholdings after significant life events to misunderstanding the tax code.

","

For instance, getting married can impact your federal tax bracket and available deductions, while the arrival of a new child might qualify you for additional credits, such as the Child Tax Credit. If these life events are not accounted for by adjusting tax withholdings, one could end up paying more taxes than necessary.

","

Furthermore, income changes from job loss, retirement or a transition to part-time work could also send you into a lower tax bracket and result in a tax overpayment. Staying informed and managing withholdings are both paramount in avoiding overpayment of taxes.

","

Strategies to Avoid Tax Overpayment

","

","

Considering the time value of money, money at your disposal now is inherently more valuable than the same amount in the future due to its potential earning capacity. Consequently, overpaying taxes is akin to lending the government money but receiving no interest for the loan. Doing so deprives yourself of the earnings that could have been accumulated had you saved or invested the extra money you paid the IRS.

","

To prevent overpayment of taxes, adjusting your tax withholdings is a wise decision. Tax withholdings refer to the portion of your income that your employer deducts from your paycheck to cover your federal and state income taxes, as well as other applicable taxes like Social Security and Medicare. These income tax withholdings are based on information provided on your W-4 form, which you complete when starting a new job or whenever your personal or financial circumstances change.

","

Tools like the IRS tax withholding estimator are invaluable in helping estimate the correct amount to withhold from your paycheck. This tool considers factors such as income, deductions and tax credits to help you make an informed decision. By accurately adjusting your withholdings, you can avoid overpaying taxes and giving the government an interest-free loan.

","

Life events such as marriage, divorce or receiving an inheritance can significantly alter your tax situation. It’s important to reassess your withholdings periodically – not just during these events – to ensure they reflect your current financial circumstances.

","

Meanwhile, itemized deductions, such as mortgage interest, property taxes and charitable contributions, as well as tax credits like the earned income tax credit (EITC) and child tax credit, can lower your taxable income and affect your tax withholdings. Reviewing and updating your deductions and credits can ensure accurate withholding amounts.

","

Lastly, stay informed about changes to tax laws and regulations that may affect your withholdings. Tax reforms, adjustments to tax brackets, and updates to withholding tables can impact the amount of tax withheld from your paycheck.

","

What Happens If You Overpay?

","

","

When the IRS identifies this overpayment during the processing of a tax return, the usual course of action is to issue a refund for the excess amount.

","

The IRS communicates with taxpayers about overpayments of estimated taxes through the CP24E notice, an official statement that outlines the overpayment on a tax return and the subsequent adjustments made.

","

Upon receiving the CP24E notice, taxpayers have the opportunity to review the changes and ensure that the final assessment aligns with their financial records.

","

What to Do With Your Refund

","

If you do end up overpaying your taxes, you’ll have several different options for receiving this reimbursement from the IRS. You can:

","

Apply a portion or all of your refund to the following year’s tax return
Receive your refund via direct deposit
Receive your refund in a check
Purchase Series I Savings Bonds with your refund

","

Bottom Line

","

A big tax refund can seem like a financial boon, but it likely means that you’ve overpaid your taxes and forfeited the opportunity to put that extra money to work. To avoid this, consider updating your tax withholdings and revisiting your allowances following major life events.

","

Tax Season Tips

","$63","

Photo credit: ©iStock.com/ljubaphoto, ©iStock.com/JJ Gouin, ©iStock.com/adamkaz

"],"experts":null,"link":"/tax-planning/tax-overpayment","published":{"datetime":"2024-3-29","readable":"March 29, 2024"},"shareInfo":{"title":"How to Avoid Overpaying Your Taxes","origin":"/taxes/tax-overpayment"},"isNewsArticle":false},{"id":"cG9zdDoyMzI5Mjc=","databaseId":232927,"postId":232927,"author":{"node":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/04483497dbd73f712b504e401c9c7d22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":770,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxMzY=","children":{"nodes":[{"name":"Other","slug":"other-taxes","__typename":"Category"},{"name":"Tax Credits & Deductions","slug":"tax-credits-deductions","__typename":"Category"},{"name":"Tax Filing","slug":"tax-filing","__typename":"Category"},{"name":"Tax Planning","slug":"tax-planning","__typename":"Category"},{"name":"Tax Policy","slug":"tax-policy","__typename":"Category"}],"__typename":"CategoryToCategoryConnection"},"databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":{"pageInfo":{"offsetPagination":{"total":244,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$64","date":"2024-01-10T15:04:36","excerpt":"

\n","featuredImage":{"id":"cG9zdDoyMzQ2MTU=","databaseId":234615,"altText":"A couple decides between filing taxes jointly versus separately.","date":"2024-01-10T14:57:47","fileSize":270586,"mimeType":"image/jpeg","modified":"2024-01-10T14:59:02","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/01/iStock-1473199721.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-1-10","readable":"January 10, 2024"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":{"url":"https://secure.gravatar.com/avatar/9fffe2eb35204e151b68731435d247c5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":{"expertise":"Financial Planning, Retirement Planning, Investment Planning, Tax Planning","__typename":"User_Additionalmeta"},"email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":38,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"aconde","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDU=","databaseId":145,"userId":145,"avatar":{"url":"https://secure.gravatar.com/avatar/5ae1da874ddac2010e70c7b0a0def3f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Michele is a practicing Certified Public Accountant with more than 20 years of experience. She has authored 15 books on topics including retirement, investing, real estate, financial recovery, budgeting, accounting, the stock market and more. She helps her clients gain financial stability and balance, navigate divorces and manage their businesses. She has taught business and accounting courses at multiple community colleges.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michele","fullName":"Michele Cagan, CPA","lastName":"Cagan, CPA","name":"Michele Cagan, CPA","postCount":{"pageInfo":{"offsetPagination":{"total":22,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcagan","__typename":"User"},"writtenBy":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/04483497dbd73f712b504e401c9c7d22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":770,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/taxes/married-filing-jointly-vs-separately","metaDesc":"If you're married, you likely have a more complicated tax situation than others. Here's how to decide between joint and separate filings.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":6,"title":"Tax Filing: Married Filing Jointly vs. Separately","__typename":"PostTypeSEO"},"slug":"married-filing-jointly-vs-separately","status":"publish","title":"Deciding Between Married Filing Jointly Versus Separately With Your Taxes","uri":"/taxes/married-filing-jointly-vs-separately","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":"$65","description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":"$66","email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":"$67","slug":"mark-henricks","__typename":"User"},"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":"$6a","description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":"$6b","email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":"$6c","slug":"arturo-conde-cepf","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDU=","databaseId":145,"userId":145,"avatar":"$6f","description":"Michele is a practicing Certified Public Accountant with more than 20 years of experience. She has authored 15 books on topics including retirement, investing, real estate, financial recovery, budgeting, accounting, the stock market and more. She helps her clients gain financial stability and balance, navigate divorces and manage their businesses. She has taught business and accounting courses at multiple community colleges.","additionalMeta":"$70","email":null,"firstName":"Michele","fullName":"Michele Cagan, CPA","lastName":"Cagan, CPA","name":"Michele Cagan, CPA","postCount":"$71","slug":"michele-cagan-cpa","__typename":"User"},"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybToxMzY=","children":"$74","databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":244,"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":true,"contentBlocks":["

When tax return season rolls around, married couples have to decide whether to file their taxes jointly or separately. Filing jointly is far more common and usually results in a lower tax bill. However, there are certain situations where filing separately makes good financial sense. Couples with student loans, self-employment income or high medical expenses may be able to save money filing separately. A session with a financial advisor can supply tailored guidance on filing status and other tax minimization strategies.

","

Filing Status Fundamentals

","

The IRS gives married taxpayers two choices for filing status when reporting federal income taxes:

","

Married filing jointly: You and your spouse combine all income, deductions, credits, etc. onto a single tax return. This effectively doubles certain tax thresholds and limits that apply to each individual.

","

Married filing separately: You and your spouse each file completely separate federal returns, reporting only your own individual income, deductions, etc. Certain tax breaks are reduced significantly or eliminated under this status.

","

As a default, the IRS expects most married couples to file jointly. But filing separately can pay off in select instances.

","

Why Filing Status Matters

","

Your filing status determines the size of your standard deduction, tax bracket thresholds, contribution limits for retirement accounts and eligibility for various tax breaks. For example, the 2023 standard deduction for married filing jointly is $27,700 ($29,200 in 2024) versus just $13,850 ($14,600 in 2024) for married filing separately.

","

Filing status also affects income phaseouts for certain deductions and credits that can make it advantageous to file separately. For instance, say one spouse has a large sum of unreimbursed medical bills. Since they can only deduct medical expenses in excess of 7.5% of your adjusted gross income, the combined income may make those expenses non-deductible. But filing separately will lower reported income on each return, improving medical expense deductibility on the return of the partner with the high bills. Be aware that if one spouse itemized deductions, the other spouse can not use the standard deduction.

","

Filing separately also comes into play if you or your spouse uses an income-based repayment plan for federal student loans. Those plans base your expected monthly payment exclusively on your individual income when taxes are filed separately. This can dramatically reduce loan payments compared to filing jointly if there is a wide gap in earnings between spouses. However, you may lose access to other tax breaks as a trade-off.

","

Filing Status Selection in Action

","

","

Consider a hypothetical married couple. One partner earns $95,000 annually as a director at a nonprofit while the other makes $55,000 working for the local school district.

","

For tax year 2023 (which are due in 2024) if a couple files taxes jointly, their standard deduction would be $27,700. This would drop to $13,850 each if they opt for married filing separately status. In their case, the joint deduction combined with their income levels yields a lower total tax bill when compared with going solo on their returns. Here are details:

","

Scenario One: Married Filing Jointly

","

Standard deduction: $27,700
Combined Income: $145,000
Taxable Income: $145,000 – $27,700 = $117,300
Taxes owed: $16,421

","

Scenario Two: Married Filing Separately

","

First partner’s return:

","

Standard deduction: $13,850
Income: $90,000
Taxable Income: $90,000 – $13,850 = $76,150
Taxes owed: $12,061

","

Second partner’s return:

","

Standard deduction: $13,850
Income: $55,000
Taxable Income: $50,000 – $13,850 = $41,150
Taxes owed: $4,718

","

Total taxes owed by both partners: $12,061 + $4,718 = $16,779

","

In this case, the total taxes owed by the couple if they file separately would be $358 higher, $16,779 versus $16,421 if they filed jointly.

","

Now assume the situation changes. The first partner enrolls in a Ph.D. program and needs to begin making payments on $65,000 in federal graduate school debt. An income-driven repayment plan could reduce their monthly student loan payments significantly if the other spouse’s income isn’t factored into the calculation. In this case, filing separately may save thousands of dollars yearly on student loan payments. (Take note: Lowering loan payments can result in paying significantly more interest over the life of the loan.)

","

Making the Call

","

In practice, less than 5% of married couples file separately. By filing jointly, married taxpayers can gain access to a larger standard deduction, may qualify for more tax credits and can potentially exempt more investment income from capital gains taxes as joint filers. That said, running the numbers both ways before you file can pay dividends in certain situations:

","

When one spouse has high medical expenses, charitable donations or miscellaneous write-offs that could exceed the married filing separately standard deduction.
If an income-driven federal student loan repayment plan would dramatically cut payments based on one spouse’s income alone.
To limit one partner’s exposure to the other’s tax debt in cases such as self-employment, underpayment penalties or issues stemming from a previous marriage.

","

Bottom Line

","

","

While married filing jointly makes sense for most couples, it may not always be the best approach. Evaluate whether filing separately might produce tax savings in special situations related to income limits on deductions, student loan repayment options tied to your income, or controlling tax liabilities. As with many money matters tied to the IRS, doing a little homework can pay big dividends at tax time.

","

Tax Planning Tips for Beginners

","$7b","

Photo credit: ©iStock/Pekic, ©iStock/katleho Seisa, ©iStock/shapecharge

"],"experts":"$7c","link":"/taxes/married-filing-jointly-vs-separately","published":{"datetime":"2024-1-10","readable":"January 10, 2024"},"shareInfo":{"title":"Deciding Between Married Filing Jointly Versus Separately With Your Taxes","origin":"/taxes/married-filing-jointly-vs-separately"},"isNewsArticle":false},{"id":"cG9zdDoyMjE0MDY=","databaseId":221406,"postId":221406,"author":{"node":{"id":"dXNlcjo5OQ==","databaseId":99,"userId":99,"avatar":{"url":"https://secure.gravatar.com/avatar/67b8e9b4ee40c2b36d23ca662b66d02f?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Ashley Kilroy is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Ashley","fullName":"Ashley Kilroy","lastName":"Kilroy","name":"Ashley Kilroy","postCount":{"pageInfo":{"offsetPagination":{"total":530,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"achorpenning","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxMzY=","children":{"nodes":[{"name":"Other","slug":"other-taxes","__typename":"Category"},{"name":"Tax Credits & Deductions","slug":"tax-credits-deductions","__typename":"Category"},{"name":"Tax Filing","slug":"tax-filing","__typename":"Category"},{"name":"Tax Planning","slug":"tax-planning","__typename":"Category"},{"name":"Tax Policy","slug":"tax-policy","__typename":"Category"}],"__typename":"CategoryToCategoryConnection"},"databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":{"pageInfo":{"offsetPagination":{"total":244,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$7d","date":"2023-12-21T08:19:11","excerpt":"

Inheriting an IRA as a beneficiary can increase your financial security. But, because an inherited IRA usually imposes a 10-year distribution schedule, the account may also create larger tax implications than expected. However, exceptions to this timeline are available. Here’s how distributions work and how to prepare yourself for anticipated taxes. A financial advisor can […]

\n","featuredImage":{"id":"cG9zdDoyMzMxNjI=","databaseId":233162,"altText":"A senior couple researching 10-year rules for inherited IRAs.","date":"2023-12-21T08:14:38","fileSize":181334,"mimeType":"image/jpeg","modified":"2023-12-21T08:15:43","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2023/12/iStock-1435141070.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-12-21","readable":"December 21, 2023"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":{"url":"https://secure.gravatar.com/avatar/9fffe2eb35204e151b68731435d247c5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":{"expertise":"Financial Planning, Retirement Planning, Investment Planning, Tax Planning","__typename":"User_Additionalmeta"},"email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":38,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"aconde","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDU=","databaseId":145,"userId":145,"avatar":{"url":"https://secure.gravatar.com/avatar/5ae1da874ddac2010e70c7b0a0def3f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Michele is a practicing Certified Public Accountant with more than 20 years of experience. She has authored 15 books on topics including retirement, investing, real estate, financial recovery, budgeting, accounting, the stock market and more. She helps her clients gain financial stability and balance, navigate divorces and manage their businesses. She has taught business and accounting courses at multiple community colleges.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michele","fullName":"Michele Cagan, CPA","lastName":"Cagan, CPA","name":"Michele Cagan, CPA","postCount":{"pageInfo":{"offsetPagination":{"total":22,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcagan","__typename":"User"},"writtenBy":{"id":"dXNlcjo5OQ==","databaseId":99,"userId":99,"avatar":{"url":"https://secure.gravatar.com/avatar/67b8e9b4ee40c2b36d23ca662b66d02f?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Ashley Kilroy is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Ashley","fullName":"Ashley Kilroy","lastName":"Kilroy","name":"Ashley Kilroy","postCount":{"pageInfo":{"offsetPagination":{"total":530,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"achorpenning","__typename":"User"},"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/taxes/irs-inherited-ira-10-year-rule","metaDesc":"When someone bequeaths an IRA to you, it's essential to adhere to the IRS Inherited IRA 10 year rule. Here's what you need to know.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":7,"title":"How the 10-Year RMD Rules Work for Inherited IRAs","__typename":"PostTypeSEO"},"slug":"irs-inherited-ira-10-year-rule","status":"publish","title":"How the 10-Year RMD Rules Work for Inherited IRAs","uri":"/taxes/irs-inherited-ira-10-year-rule","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo5OQ==","databaseId":99,"userId":99,"avatar":"$7e","description":"Ashley Kilroy is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.","additionalMeta":"$7f","email":null,"firstName":"Ashley","fullName":"Ashley Kilroy","lastName":"Kilroy","name":"Ashley Kilroy","postCount":"$80","slug":"ashley-kilroy","__typename":"User"},"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":"$83","description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":"$84","email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":"$85","slug":"arturo-conde-cepf","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDU=","databaseId":145,"userId":145,"avatar":"$88","description":"Michele is a practicing Certified Public Accountant with more than 20 years of experience. She has authored 15 books on topics including retirement, investing, real estate, financial recovery, budgeting, accounting, the stock market and more. She helps her clients gain financial stability and balance, navigate divorces and manage their businesses. She has taught business and accounting courses at multiple community colleges.","additionalMeta":"$89","email":null,"firstName":"Michele","fullName":"Michele Cagan, CPA","lastName":"Cagan, CPA","name":"Michele Cagan, CPA","postCount":"$8a","slug":"michele-cagan-cpa","__typename":"User"},"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybToxMzY=","children":"$8d","databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":244,"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":true,"contentBlocks":["

","

A financial advisor can help optimize your retirement plan to minimize taxes.

","

What Is an Inherited IRA?

","

An inherited IRA is an individual retirement account (IRA) that you receive if the original accountholder passes away and listed you as the beneficiary of the account. You can also inherit an IRA through the probate process if the original account holder doesn’t name a beneficiary before passing away.

","

Inheriting an IRA means receiving ownership of a financial account with several rules. You can opt to take all the money as a lump sum, set up required minimum distributions (RMDs) to flow to you over 10 years, or take irregular distributions. That being, said, you usually need to empty an inherited IRA within 10 years. There are exceptions to this rule, which will be explored below. However, it’s crucial to understand the 10-year RMD rule for inherited IRAs before doing so.

","

What Is the 10-Year RMD Rule for an Inherited IRA?

","

The 10-year RMD rule is a result of the Setting Every Community Up for Retirement Enhancement Act of 2019, also known as Secure 1.0. The law creates several designations for IRA beneficiaries and defines which rules each designation follows. Beneficiaries following the 10-year RMD rule must drain the account entirely by the end of the 10th year after inheriting the account. This legislation went into effect on December 20, 2019, and dictates what happens to IRAs inherited in 2020 and beyond.

","

Before the legislation in 2019, federal law allowed beneficiaries to receive distributions based on the old account holder’s life expectancy. As a result, inheriting an IRA meant you could receive tiny distributions for decades, minimizing the tax consequences for this new stream of income. Secure 1.0 eliminates this possibility for most beneficiary classes and imposes a 10-year RMD schedule to prevent IRAs from lingering in a taxpayer’s possession.

","

Beneficiary Classes Explained

","

Secure 1.0 created four beneficiary classes for inherited IRAs. Understanding which class or designation applies to you will help you determine if you’re exempt from 10-year RMD rule. Here are the classes:

","

Designated Beneficiary

","

A designated beneficiary can be a person or a see-through trust. Designated beneficiaries follow the 10-year rule unless they’re eligible for an exception.

","

Eligible Designated Beneficiary

","

An eligible designated beneficiary is exempt from the 10-year rule by falling into one of the following categories:

","

the surviving spouse of the account holder
a child under age 21 of the account holder
a disabled or chronically ill person
a person who isn’t more than 10 years younger than the account holder

","

Options for distributions vary for eligible designated beneficiaries. Surviving spouses creating an inherited IRA may be able to use the original account holder’s RMD age to begin taking RMDs based on their own life expectancy. They can also roll the account over into their own IRA, but early withdrawal penalties may apply in some situations if the surviving spouse takes ownership that way.

","

Minor children, on the other hand, receive RMDs based on their life expectancy. They follow the 10-year RMD rule upon turning 21.

","

Disabled and chronically ill beneficiaries can also use their own life expectancy because of their medical condition. And similarly, beneficiaries no more than 10 years younger than the original account holder can use their own life expectancy for RMDs.

","

Breaking Down the Three 10-Year Rules

","

","

The beneficiary designation is also determined by when the account holder dies in relation to their required beginning date (RBD). The RBD depends on the account holder’s required minimum distribution (RMD) age. Every account holder must start taking RMDs upon reaching a specific age. The RBD is April 1 of the year after the account holder ages into RMDs.

","

For instance, if you reach age 72 after 2022 and turn 73 before 2033, your RMD age is 73. In this case, your RBD is April 1 in the year after you turn 73. However, an account holder who dies before reaching their RBD creates different conditions than dying after their RBD. Here are the three versions of the 10-year RMD rules for beneficiaries based on the account holder’s death:

","

The Account Holder Dies Before Their RBD

","

This situation means distributions are optional for the nine years after the participant’s death. However, the beneficiary must receive all of the IRA’s funds by the end of the 10th year. Remember, this condition applies to designated beneficiaries, while eligible beneficiaries can use the exceptions described above.

","

The Account Holder Dies on or After Their RBD

","

In these circumstances, a designated beneficiary must take annual RMDs based on their own life expectancy. They have 10 years to empty the IRA, starting on December 31 of the year after the participant dies. In addition, if the original account holder didn’t take their first RMD, the beneficiary must receive it immediately. As with the first rule, eligible beneficiaries have exceptions.

","

The Eligible Designated Beneficiary Dies

","

If an eligible designated beneficiary dies, the inherited IRA goes to the successor beneficiary. The successor takes distributions according to the eligible designated beneficiary’s life expectancy. These distributions must empty the IRA by the 10th year after the eligible designated beneficiary dies, starting with the first full year.

","

How Are Inherited IRAs and RMDs Taxed?

","

Inheriting a traditional IRA means paying standard income tax rates on distributions. Although the IRA income can raise your marginal tax rate, taking the distributions is better than the alternative: Failing to take RMDs incurs penalties as high as 50% of the annual RMD amount not taken.

","

On the other hand, Roth IRAs usually don’t raise your income taxes. Because the original account holder paid income taxes before contributing to the plan, withdrawals from Roth IRAs are tax-free, with one exception. If the Roth IRA was opened less than five years before the account holder passed away, the IRA’s earnings will incur income taxes unless you wait for the account to be five years old. Remember, their original contributions are still tax-free in these cases.

","

Proposed Regulations for Inherited IRAs

","

Because Secure 1.0 creates a thicket of rules and classifications to wade through, the IRS decided to waive missed RMD penalties for inherited IRAs from 2020 through 2024. However, industry experts expect that the federal government will provide definitive regulation in 2024 to clarify Secure 1.0. The waived penalties are a temporary measure to give beneficiaries time to prepare for the RMD rules that Secure 1.0 introduced.

","

Because the IRS has delayed enforcing RMD penalties for the last four years, 2024 may introduce new financial consequences for inherited IRA beneficiaries. As a result, consulting with tax professionals to navigate potential tax bills associated with RMDs in the coming years is recommended. Staying informed about legislative changes will help you make effective financial planning decisions.

","

Bottom Line

","

","

Inheriting an IRA often starts a 10-year clock on taking distributions. If a beneficiary falls into one of the exceptions, they can slow down distributions using their own life expectancy. The 10-year schedule for distributions increases your annual income from an inherited IRA, raising your taxes if the account is a traditional IRA. On the other hand, Roth Accounts provide tax-free status if the account is at least five years old.

","

Tips for 10-Year RMD Rules for Inherited IRAs

","$94","

"],"experts":"$7c","link":"/taxes/irs-inherited-ira-10-year-rule","published":{"datetime":"2023-12-21","readable":"December 21, 2023"},"shareInfo":{"title":"How the 10-Year RMD Rules Work for Inherited IRAs","origin":"/taxes/irs-inherited-ira-10-year-rule"},"isNewsArticle":false}]}]