Why Retirees Are Still Caught Off Guard by Underpayment Penalties (And what to review before you file)

Many retirees assume that if taxes were withheld during the year, everything should work out at filing.

In reality, underpayment surprises are one of the most common issues we see — especially in years that include RMDs, Roth conversions, investment income, or one-time events.

Here are three reasons this happens and what to review before your return is finalized.

Reason #1 – Withholding didn’t keep up with changing income

What happens
You had taxes withheld from Social Security, pensions, or IRA distributions — but your total income changed during the year.

Why it matters
RMDs, conversions, and investment income often stack on top of each other and can quietly increase your total tax bill.

Self-check
Compare your total federal withholding from all 1099s to your total tax owed last year. A large gap is a sign your withholding strategy may need adjustment.

Reason #2 – Estimated payments were missed or uneven

What happens
Estimated tax payments were skipped, delayed, or not adjusted when income changed.

Why it matters
Uneven payments can lead to penalties even when the final tax bill is paid in full.

Self-check
List your estimated payments by quarter and confirm the amounts and dates before filing.

Reason #3 – Safe harbor rules were assumed — but not confirmed

What happens
Many retirees assume they qualify for safe harbor without checking whether the required thresholds were actually met.

Why it matters
If safe harbor was not met, penalties can apply even when withholding seems reasonable.

Self-check
Review whether your total withholding and estimated payments meet the appropriate prior-year or current-year safe harbor rules.

A quick underpayment self-check

Before your return is finalized, review:

• total federal and state withholding from all 1099s

• estimated payments made and timing

• whether your income changed materially during the year

• whether large RMDs, Roth conversions, or capital gains occurred

If two or more apply, it is worth reviewing your filing plan before submitting your return.

Get help reviewing your withholding and estimated tax strategy

In a 30-minute Pre-Filing Review, we will:

• review your withholding and estimated payments

• identify underpayment risk before filing

• coordinate with your tax professional as needed