Lauryn Williams won Olympic gold in the 4×100-meter relay at the 2012 London Games and added a bobsled silver two years later.
Years before that, while earning more than $200,000 a year in her early 20s, she handed $150,000 to a stranger who promised to double it within a month. The money was supposed to cover her taxes.
It disappeared. When the tax bill came due, Williams took out a second mortgage to pay it, she told Washington Post columnist Michelle Singletary. Williams, now a certified financial planner, said she should have asked far more questions.
Few people hand their tax money to a stranger. Plenty still reach December owing more than they planned, especially retirees whose income no longer comes with automatic withholding.
The IRS figures the penalty on that shortfall at an annual rate of 7% for the last quarter of 2026, charged for each day a payment is late. Several fixes still work before the year closes.
1. Withhold tax from a December IRA withdrawal
Estimated tax payments are credited on the date you make them. Withholding gets better treatment. Unless you show otherwise, the IRS counts one-fourth as paid on each quarterly due date, no matter when it actually came out.
That makes a December IRA withdrawal a useful tool. A retiree who skipped estimated payments since spring can take a distribution, ask the custodian to withhold a large share for federal tax and have that money treated as if it had been paid evenly through the year.
Retirees taking a required minimum distribution can do the same with a withdrawal they have to take anyway.
2. Check whether you owe a penalty at all
Most people avoid the penalty if they owe less than $1,000 after withholding and refundable credits. You can also avoid the penalty by paying at least 90% of the 2026 tax bill or 100% of the tax shown on the 2025 return, whichever is smaller.
Higher earners face a stiffer test. If your adjusted gross income for 2025 topped $150,000, or $75,000 for married people filing separately, the prior-year target rises to 110%. A quick look at last year’s return shows which number to aim for.
3. Use the annualized method if your income came in late
The standard penalty math assumes income arrived evenly. A retiree who sold a rental property in October or took a large withdrawal in the fall did not earn it that way, and the annualized installment method on Form 2210 can reduce or eliminate the penalty by matching payments to when the income actually came in.
The fourth estimated payment for 2026 is due Jan. 15, 2027. Paying enough by then stops the penalty from growing, though it won’t erase what has already built up on earlier quarters.
4. Ask for a waiver if you retired after 62
The IRS may waive the penalty if you retired after reaching age 62, or became disabled, in the tax year or the year before, and the underpayment came from reasonable cause rather than willful neglect.
The first year of retirement is exactly when withholding tends to fall through the cracks, so a waiver request is worth making when it fits.
5. Set up Social Security withholding for 2027
Social Security does not withhold federal income tax unless you ask. Form W-4V lets you choose 7%, 10%, 12% or 22% of each payment. It will not fix a 2026 shortfall, but it can keep the same problem from showing up next year, especially as 2027 brackets and deductions shift.
6. Keep the tax money where you will not touch it
Williams’ loss started with money that was sitting where it could be spent. A separate account earmarked for taxes, ideally one that pays interest, puts a little distance between that money and everything else.
A few minutes spent comparing places to keep your savings can turn a tax reserve into one that earns while it waits.
A December fix beats a second mortgage
Williams covered her tax bill by borrowing against her house.
A shortfall caught in December usually costs far less to fix. One withholding election on a withdrawal can do most of the work, and a payment by Jan. 15 keeps the penalty from growing.
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