How to handle withholding when maxing out 401k at the beginning of the year?

[scripta]

@Full_Disclosure

You could still owe penalties, and they’d be calculated automatically. Estimated payments aren’t the same as withholding where they’re considered spread out throughout the year.

Withholdings do not have to be considered spread out throughout the year – Form 2210 Part II D is for “treating the federal income tax withheld from your income as paid on the dates it was actually withheld, instead of in equal amounts on the payment due dates.” Both income and withholdings may not be even throughout the year, you only need to pay what you owe (withholdings + estimates) by the quarterly due dates.

[StatGren]

@scripta

Withholdings do not have to be considered spread out throughout the year – Form 2210 Part II D is for “treating the federal income tax withheld from your income as paid on the dates it was actually withheld, instead of in equal amounts on the payment due dates.” Both income and withholdings may not be even throughout the year, you only need to pay what you owe (withholdings + estimates) by the quarterly due dates.

Right. You have the option of assuming that W-2 withholdings are even throughout the year, or use the actual dates paid. Estimated payments, on the other hand, cannot be assumed even throughout the year, unless they actually were. That prevents you from paying your previous year total tax liability on January 15 and getting away with it.

[Full_Disclosure]

@scripta

Withholdings do not have to be considered spread out throughout the year – Form 2210 Part II D is for “treating the federal income tax withheld from your income as paid on the dates it was actually withheld,

This has extremely minimal practical significance, and no significance to the OP since the withholdings will be backloaded.

The rule that withholdings are equal throughout the year is, practically always, a benefit to the taxpayer.

[glitch99]

There’s no reason to assume payments are equal across the 4 quarters regardless. Estimated payments are also used for unexpected/temporary income spikes during the year.

I admit I’m not certain about this, but I’m pretty sure the whole “substantially equal quarterly payments” thing is more a punative requirement after being busted for underpayment. Or it’s implied when there is a consistent income not subject to withholding, where it’s just matching payments with income from quarter to quarter.

Regardless, and I know some states may be different, the IRS isn’t going to get pissy about a few hundred dollars paid in the “wrong” quarter. As long as there’s some indication you attempted to follow “pay as you go”.

[StatGren]

@glitch99

the IRS isn’t going to get pissy about a few hundred dollars paid in the “wrong” quarter.

No, you are incorrect [Assuming we are talking about estimated payments rather than withholding. If we are talking withholding, them yes … you could have your entire liability withheld from your December paycheck with impunity. And yes, that’s more important as to the original question.]. The underpayment calculation isn’t a judgment call, or something they’d pull out on special cases.

If you make estimated payments that are unequal, then you MUST use the Regular Method of calculating the penalty. The payments must be sufficient to cover income during those same periods (or earlier, perhaps). It’s that simple. Look at form 2210:

f2210.pdf