Single RMD in December considered evenly distributed for California?

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  • #4722
    luke_airig
    Participant

    My understanding is that the IRS considers taxable IRA distributions as being evenly distributed over the course of the tax year when the distributions are made.

    For California tax purposes are taxable IRA distributions also considered evenly distributed over the course of the tax year in which they are made?

    TIA

    Luke

    #4723
    kaneohe
    Participant

    I believe CA treatment of income is similar to the federal. The default, unless you elect the annualized income method, is to get the annual tax due and then determine the safe harbor amount to be paid. You then, for CA, expect 30% paid for Q1 and Q4 and 40% in Q2. This method does not ask about timing of income so the assumption is that it is evenly distributed during the yr.

    You can elect the annualized income method which considers the timing of income so may be more favorable if you have income late in the yr. This comes at the price of much greater complexity.

    See form 5805 and instructions. https://www.ftb.ca.gov/forms/2018/18-5805-instructions.html https://www.ftb.ca.gov/forms/2018/18_5805.pdf

    #4724
    luke_airig
    Participant

    If I take a single RMD in December with California state withholding equal to the safe harbor amount does California recognize the withheld amount as being paid evenly throughout the year? If so, this should eliminate the need to file California estimated taxes. The safe harbor amount that would have been paid via the estimated tax payments will be met with the withheld amount from the single December RMD and, if California recognizes the amount withheld as being paid evenly throughout the year, there would be no need for any estimated tax payments.

    So, will California penalize me for not making estimated tax payments or will they consider my taxes to have been paid in a timely manner (with the safe harbor amount withheld from the single December RMD)?

    #4725
    kaneohe
    Participant

    From the instructions for 540-ES:

    “B. Who Must Make Estimated Tax Payments
    Generally, you must make estimated tax payments if you expect to owe at least $500 ($250 if married/RDP filing separately) in tax for 2019 (after subtracting withholding and credits) and you expect your withholding and credits to be less than the smaller of:

    90% of the tax shown on your 2019 tax return; or
    100% of the tax shown on your 2018 tax return including Alternative Minimum Tax (AMT).”

    From this it sounds like if your w/h meets the safe harbor, you don’t need to make estimated payments. There is a lot of talk about how federal w/h is considered to be paid evenly during the yr regard of timing. There is much less talk about CA w/h……..but my impression is that it works the same way. Try contacting FTB if any doubts.

    • This reply was modified 1 year, 11 months ago by kaneohe.
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