K-t-F

Required Tax Payment Schedule?

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Did I miss the memo? 

I have a client who has for a few years been taking distributions from his single member plan.  He is older than 59-1/2 (70-1/2 this year as a matter of fact) so there is not premature distribution issue.  We pay the taxes on all distributions in excess of the 20% minimum (33%)... prepare the 1099-R and 945.  Uncle Sam sent him a penalty letter telling him that his tax payments are late!  That he is on a tax payment "schedule"? 

Ok.. how can he be on a "schedule" if he doesn't know when he will take a distribution?  And.. when he does take a payout he immediately pays the taxes... using the EFTPS  system. 

Like I said.. did I miss the memo? 

Edited by K-t-F
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7 minutes ago, K-t-F said:

Ok.. how can he be on a "schedule" if he doesn't know when he will take a distribution?  And.. when he does take a payout he immediately pays the taxes... using the EFTPS  system.

The schedule should be either monthly or semiweekly.  Monthly is due by the 15th of the month following, and semiweekly is a few days following the distribution, depending on the day the distribution is made.

When you say immediately, does that mean the same day, day after, week after?

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I get that a business may be on a schedule but a participant of a plan who takes distributions during the year is supposed to make periodic tax payments?  How would he know how much to pay?

Regarding how quick did he make the tax deposits here is an example... 

  • he took a $23,000 payout...
  • $15,000 to him on 1/13
  • $8,000 to the IRS on 1/17

During the year he took $373K in total payouts.  He paid in from that taxes totaling $124K. 

What about all the plan participants who take RMDs?  Are they supposed to make tax payments monthly? 

 

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So the schedule is based on the plan's deposits. Each time the plan makes a distribution, it must also make a deposit of the withholdings for that distribution based on the appropriate schedule. What's so hard about that?

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25 minutes ago, K-t-F said:

I get that a business may be on a schedule but a participant of a plan who takes distributions during the year is supposed to make periodic tax payments?  How would he know how much to pay?

Regarding how quick did he make the tax deposits here is an example... 

  • he took a $23,000 payout...
  • $15,000 to him on 1/13
  • $8,000 to the IRS on 1/17

During the year he took $373K in total payouts.  He paid in from that taxes totaling $124K. 

What about all the plan participants who take RMDs?  Are they supposed to make tax payments monthly? 

 

From the amount of taxes (100k+), sounds like you should be a semiweekly depositor.   You will have to look up the exact schedule, but you only have a few days to make the deposit.  Look at publication 15 section 10 or 11 for the explanation.  Its referenced in the 945 instructions and have been for as long as I can remember.  

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The instructions of 945 do point to Pub 15 section 11.  Reading and trying to understand. 

I spoke to an agent who did tell me that they have this plan in their system as a semiweekly8 depositor. 

Im reading and will circle back

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1 hour ago, RatherBeGolfing said:

From the amount of taxes (100k+), sounds like you should be a semiweekly depositor.   You will have to look up the exact schedule, but you only have a few days to make the deposit.  Look at publication 15 section 10 or 11 for the explanation.  Its referenced in the 945 instructions and have been for as long as I can remember.  

Bingo.  The term "schedule" might be confusing; the distributions of course aren't on any kind of schedule but the timing of the tax deposits after withholding is the key "schedule" you have to follow.  And if you are the one doing the deposits through your own account, there's barely or maybe not even enough time to let the check clear.  The trick is to report the "right" distribution date for the actual deposit date, if you know what I mean...:shades:.  Or just bag the withholding and have him start making quarterly tax payments.

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The IRS is... well... dealing with this I became very frustrated.  I spoke to 4 different people and got many different answers.  One agent told me I was all good!  Another told me that my client was on a daily schedule... that the taxes needed to be in by the very next day.  Sheesh!   Who knows the answer definitively!

But what frustrated me the most is that the client would pull the distribution and at the very same time pay the taxes using his EFTPS account and yet the IRS said he is still late.  Im still looking into this... something is not right.

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First, forget about trying to get accurate or even consistent answers by calling an IRS 800 number.  You're going to have to research it and know it better than they do so you can browbeat them into submission.

1/13 and 1/17 are not "the very same time."  (Although that fact pattern should be ok...if you look at the Rev. Notice 931 for 2017 it says a 1/13 (Friday) payment is due on Wednesday (1/18).  I suspect other payments during the year were late.  Just remember that this is all computer-driven so the trick for 2018 is to make sure your paydates line up properly with the deposit dates.  The 2018 Notice actually has a schedule with dates.

For 2017, did you or anyone prep a 945-A with those detailed dates?  I'm not some big expert on this but went through it for 2016 for a client in exactly the same scenario.  They suddenly became a semi-weekly depositor and the IRS asked for the 945-A; we shrugged and did it without thinking too carefully about the dates, and they came back and said there were penalties.  We looked more carefully and said "oops some of those paydates were wrong" and fixed it and it went away.

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Thanks Bird...

No, did not prepare a 945-A but it sounds like maybe we should to argue that the payments were not late. 

As for those dates, I was told that the payments were both instigated on the same day but cleared on those specific dates.  An internal payment is quick... a payment that flows through EFTPS took a few days. 

Im going to do more research.

Thanks again

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