Stock Dividend Withholding?


D

don

We now receive ~$150,000 in qualified stock dividends
annually. Only my wife works, and we have had all of our
state and federal tax withholding (w/h) taken from her
payroll check. Soon she too may want to likewise retire, as
the needed w/h from each check (for both her salary and the
dividends) makes it seem "pointless to work" - lol!

I was wondering if I could instruct the agent for the
company paying those dividends to withhold a one time w/h
payment for both the fed and state (CT) each December. That
w/h would be calculated to be sufficient, such that we would
not owe a tax penalty. I am also assuming that there is no
"time element" associated with that stock dividend w/h
payment; like payroll w/h, it is assumed to be paid over
the entire tax year. I would prefer not to file quarterly
estimated taxes (nor further increase the w/h from wife's
check).

Thanks for any advice.

-don

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P

Phil Marti

I was wondering if I could instruct the agent for the
company paying those dividends to withhold a one time w/h
payment for both the fed and state (CT) each December.
You can ask, but AFAIK they don't have to unless you're
subject to backup withholding. I'm not even sure whether
they are allowed to, but there's an easy way to find out.

--
Phil Marti
Clarksburg, MD

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
 
E

ed

We now receive ~$150,000 in qualified stock dividends
annually. Only my wife works, and we have had all of our
state and federal tax withholding (w/h) taken from her
payroll check. Soon she too may want to likewise retire, as
the needed w/h from each check (for both her salary and the
dividends) makes it seem "pointless to work" - lol!

I was wondering if I could instruct the agent for the
company paying those dividends to withhold a one time w/h
payment for both the fed and state (CT) each December. That
w/h would be calculated to be sufficient, such that we would
not owe a tax penalty. I am also assuming that there is no
"time element" associated with that stock dividend w/h
payment; like payroll w/h, it is assumed to be paid over
the entire tax year. I would prefer not to file quarterly
estimated taxes (nor further increase the w/h from wife's
check).
don, it's a good idea, but might be difficult to get a
broker to make a one time withholding each year. I suggest
if you have an IRA or 401k or pension that you take a
Required Minimum Distribution from that you use that for
your withholding. Otherwise, the broker would probably
withhold monthly the same amount.

ed

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
 
D

don

You can ask, but AFAIK they don't have to unless you're
subject to backup withholding. I'm not even sure whether
they are allowed to, but there's an easy way to find out.
Thank you for the quick response -- most appreciated.

In my initial post, I did not realize that it was germane --
but we own the dividend paying stock in certificate form
(not held in a brokerage acct). The transfer agent for that
stock has now said they can W/H both fed and state taxes. I
was unsure if the once a year payment, by the transfer
agent, would lead to any problems. By making one payment in
December I will know our total income from: My wife's yearly
salary, the total dividend payments received from all of
our stocks, and any stock trading capital gains -- all year
to year variables. My wife would continue to have some money
w/h from each pay check, but no longer an amount that would
be approach our total tax year liability.

Thanks again!!
 
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N

Nan, EA in LA

ed said:
(e-mail address removed) wrote:
don, it's a good idea, but might be difficult to get a
broker to make a one time withholding each year. I suggest
if you have an IRA or 401k or pension that you take a
Required Minimum Distribution from that you use that for
your withholding. Otherwise, the broker would probably
withhold monthly the same amount.
An amount withheld at the end of the year to cover the
entire year will generate a penalty for underwithholding.

Nan, EA in LA
 
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P

Phil Marti

By making one payment in
December I will know our total income from: My wife's yearly
salary, the total dividend payments received from all of
our stocks, and any stock trading capital gains -- all year
to year variables. My wife would continue to have some money
w/h from each pay check, but no longer an amount that would
be approach our total tax year liability.
Just make sure that the December dividend payable will be
enough.
 
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P

Phil Marti

Nan said:
An amount withheld at the end of the year to cover the
entire year will generate a penalty for underwithholding.
Why? The default treatment of withholding credits when
considering estimated tax penalty is to spread them equally
throughout the year.

See Publication 505 and the instructions for Form 2210.
 
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D

don

Why? The default treatment of withholding credits when
considering estimated tax penalty is to spread them equally
throughout the year.

See Publication 505 and the instructions for Form 2210.
I am aware that I need to insure that sufficient $'s are
w/h, so we will not owe a penalty (based upon minimum
withholding reg's). Given that I will "know" our yearly
income from all sources, I can instruct the transfer agent
to w/h enough from the December dividend distribution, so as
to avoid that penalty.

You further lead me to believe that I will not face any
penalty for using JUST the December stock dividend payment,
as the most significant portion of our total withholding
(for both Fed and CT). My wife will have continue to have
some w/h from her salary, but that dividend w/h will cover
most of our total liability.

Again thanks to all of the respondents - this is such a
valuable site.

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
 

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