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Imagine getting a note like this:
We both retired this spring. For 40 years an employer took taxes out of our paychecks. Now we live on Social Security and IRA withdrawals, and nobody is taking out much of anything. A neighbor says we’ll get slammed in April. Is she right?
Let’s say it came from a couple we’ll call Bob and Marie. They’re made up, but their situation is a common one for new retirees.
The neighbor may have a point. In most cases, the IRS says you must pay estimated tax if you expect to owe at least $1,000 for 2026 after subtracting withholding and refundable credits, and your withholding falls short of certain minimums. (1)
And Social Security withholding is something you have to request. You can choose to have 7%, 10%, 12% or 22% of your monthly payment withheld. (2)
I’ve been a CPA since 1981, and the good news is there’s still time to fix this for 2026. Here are 5 steps.
1. Find out what’s being withheld, if anything
Start with your IRA. For one-time withdrawals, the default federal withholding rate is 10%, according to IRS Form W-4R. (3)
That may not be enough. Here’s a rough example: if every dollar of a $40,000 IRA withdrawal landed in the 12% bracket, the tax would be $4,800, but default withholding would have covered only $4,000.
2. Remember that Social Security can be taxable, too
Don’t assume Social Security is tax-free. It isn’t always. Social Security says you’ll pay federal income tax on benefits if your combined income exceeds $25,000 a year for individuals or $32,000 for couples filing jointly. (4)
The IRS test adds half your benefits to your modified adjusted gross income. (5) By my read, that means a bigger taxable IRA withdrawal can make more of your benefits taxable.
There’s some relief. For 2025 through 2028, people 65 and older can claim an extra $6,000 deduction, which phases out for modified adjusted gross income over $75,000 ($150,000 for joint filers). (6) It applies to each eligible person, so a married couple can get $12,000 if both spouses qualify. (6)
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3. Know the safe harbors that protect you from the penalty
The underpayment penalty is avoidable. The IRS says most taxpayers won’t owe it if they owe less than $1,000 after withholding and refundable credits. (7)
You’re also generally safe if your withholding and estimated payments covered at least 90% of this year’s tax or 100% of last year’s, whichever is smaller. (7) If your 2025 adjusted gross income topped $150,000, the prior-year test uses 110% of last year’s tax instead of 100%. (1)
For a couple whose income dropped in retirement, 90% of this year’s smaller tax bill is likely the lower bar.
4. Make a payment before Jan. 15
The last 2026 estimated tax payment is due Jan. 15, 2027. (1) If you’re behind, a payment by then can help reduce a penalty.
You can also skip that payment if you file your 2026 return by Feb. 1, 2027, and pay the entire balance with it. (1)
Then fix 2027 now. Set up withholding from Social Security online through your my Social Security account or by phone, and ask your IRA custodian to withhold more. (2)(3)
5. If you already owe more than you can pay, don’t ignore it
Never ignore an IRS bill.
Ignoring a $5,000 IRS tax bill can quickly snowball into a $10,000 nightmare with penalties, interest, and asset liens.
(If you owe back taxes, you don’t have to face the IRS alone. Compare your top tax relief options now to find expert help.)
And if your retirement income comes from several places, it can pay to have a professional map out withdrawals and withholding for you.
One option: SmartAsset offers a free matching service that pairs you with up to three fiduciary financial advisors, all legally required to put your interests first.
They can help with tax savings, Social Security strategies, investment advice and planning gaps you might miss.
To use the service, expect a questionnaire of about 10 minutes. You’ll be asked for a phone number near the end: provide it, but you control whether and when you respond.
SmartAsset provides the match, not the advice, and it’s built for people with $100,000 or more in investments. Get matched with a fiduciary advisor free.
My honest take
For 40 years, your employer did the tax math for you. In retirement, that job is yours, and nobody sends you a reminder.
So spend an hour this month adding up what you’ve taken out and what’s been withheld. If there’s a gap, close it before Jan. 15, then set up withholding so it doesn’t happen again.
Bob and Marie earned this retirement. The last thing they need is a spring surprise from the IRS.
Sources: 1. Internal Revenue Service; 2. Social Security Administration; 3. Internal Revenue Service; 4. Social Security Administration; 5. Internal Revenue Service; 6. Internal Revenue Service; 7. Internal Revenue Service
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