Everett’s Accountant Added a Line This Year

Everett brought my post-hole digger back in June with the dirt hosed off it and the gearbox greased, which is the kind of man he is.

We were wrestling it out of his truck bed when he said his taxes had cost him extra this spring.

I took him to mean the preparer’s bill. He meant a line on the return.

Three hundred and eighty-one dollars, in a box near the bottom, for a thing he hadn’t done and had never once been told to do.

He’d been retired two years by then. The return he was talking about covered the first tax year he’d gone the whole way through without a job.

For forty-some years a payroll department took Everett’s taxes out before he ever saw the money.

He never thought about it. That’s the design. You’re not supposed to think about it.

Then the job ended, and that department stopped existing for him, and nobody sent a letter about it.

The money kept coming. A pension, some dividends, a little out of the retirement account when he wanted a new mower. All of it taxable. And on every one of those forms there’d been a box about withholding, and he’d either left it alone or checked no without reading it. So it all arrived untouched.

The IRS doesn’t want its money in April. It wants it through the year, the way it always got it, and it charges you when it doesn’t.

Everett paid his whole bill on time in April. He still owed the extra three hundred and eighty-one.

Everett called it a fine. So would I have. It isn’t one, and the difference matters.

The IRS treats it as interest on money you were holding that it says was already theirs. The rate gets reset every quarter, and it’s the federal short-term rate plus three points.

For the last quarter of this year they left it where it was: seven percent.

So it isn’t a punishment. It’s a meter that runs from the day a payment was due.

Four of those days a year. April 15th, June 15th, September 15th, and the 15th of January after.

And it’s figured quarter by quarter, not as one lump at the end. The IRS looks at how much was short and how long it stayed short. Which is why a miss in April costs more than the same miss in September.

Look at that third one and then look at your calendar. That one went by last Tuesday.

But I was wrong to tell Everett there was nothing to be done about it, because there’s one door out and it was built for men on this list.

The instructions for the form say the IRS will waive the penalty if you retired after reaching 62, in the tax year or the one before it, and the underpayment was down to reasonable cause and not willful neglect.

It isn’t automatic. You check a box in Part II, attach the form, and send a statement explaining yourself along with something showing your retirement date and how old you were on it.

I sent Everett back to ask about it. He’d never heard of it, and neither had I until I went looking.

This next bit sent me to my own filing cabinet.

You don’t have to guess this year right. The law gives you a door, and the door is last year’s number.

The instructions for the form put it as plainly as the government puts anything. You may owe the penalty if your withholding and timely payments didn’t come to at least the smaller of ninety percent of this year’s tax, or one hundred percent of last year’s.

Read that second one again. Last year’s tax. A number already printed on a return sitting in your drawer.

That’s the whole gift of it. You aren’t being asked to forecast a year you haven’t lived yet. You’re being asked to match a number you already know.

Hit it and the penalty can’t touch you, no matter how big this year turns out. Sell some land in November, take a fat distribution in December, and the meter still doesn’t run. You’ll owe the tax itself come April. You just won’t owe anything on top.

One catch, and it’s the one that bites men like us. If last year’s adjusted gross income was over $150,000, the number isn’t one hundred percent. It’s a hundred and ten.

And if you end up owing under a thousand dollars when it’s all settled, the law says there’s no penalty at all. That’s written into the statute, not a favor.

That last line of the table is the reason I wrote this one.

There’s a quirk sitting in the statute, and it’s been there a long time, and it’s worth more to a retired man than most of what gets written about money.

An estimated payment counts on the day you send it. Miss April and April stays missed.

Withholding doesn’t work that way. The instructions say you’re considered to have paid one-fourth of your withheld federal income tax on each payment due date, unless you can show otherwise.

One-fourth on each due date. Including the ones that already went by.

The law itself says an equal part of the amount gets deemed paid on each due date for the year. December money, treated as April money.

Which means a man who takes money out of a retirement account late in the year, and has tax withheld from that money on the way out, has paid on time by the government’s own reckoning. Withholding out of a retirement account is federal income tax withheld, and it totals up on the same line of the return as the withholding off a paycheck.

He pulled last year’s return out and wrote one number on an index card. The total tax line.

That card is taped to the inside of a kitchen cupboard, next to the spare truck key.

In the first week of December he calls the outfit that holds his retirement account and takes out enough to cover that number, with the whole thing withheld for federal tax on the way out. He sees none of it. It goes straight to the government.

One call, once a year, and the four due dates take care of themselves.

Now the part where I say the thing I always say. I’m not your accountant and I’ve never seen your return. The rates and the rules above are the government’s own, and what to do with them in your particular year is a conversation to have with somebody who can be held responsible for the answer.

What I’d hate is for you to find this out the way Everett did, in a box near the bottom, months after the last day you could have done anything about it.

We got the digger down and sat on his tailgate a while.

He wasn’t sore about the money. Three hundred and eighty-one dollars isn’t what put that look on him.

It was that he’d done everything he thought was asked. Filed on time. Paid in full. Never once tried to keep a dollar he owed.

And there was a rule running the whole time that nobody had mentioned, because for forty-some years a payroll clerk had been handling it for him, and not one word about it ever passed between them.

That’s the thing about a job. It does a lot of quiet work for you, and you only find out which parts when it stops.

He aired up my tires before he left, too. I only noticed the next morning.

— Walter