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If you’re still working, you probably don’t need to worry about estimated tax payments. Withholding on your paychecks should ensure compliance with the tax system’s pay-as-you-earn demands.

But if you’re retired, chances are you need to make estimated payments. You’re basically supposed to figure how much tax you’ll owe for the current year and send it along to the IRS in four equal installments (due mid-April, mid-June, mid-September and mid-January).

If you pay at least 90% of this year’s liability or 100% of what you owed last year, you’ll have done your duty and be protected from an underpayment penalty. (That 100% of last year’s taxes rises to 110% if your adjusted gross income last year was more than $150,000.)

Not only can making those estimates be a pain, writing those checks can disrupt your cash flow. Many taxpayers simply divide the previous year’s tax bill by four and send 25% on each payment date to wrap themselves in the “100% of last year’s tax bill” exception.

But depending on the source of your retirement income, you may be able to satisfy the IRS via withholding from those payments.

Unlike withholding from paychecks, withholding from retirement income is almost always voluntary. (The exception: Non-IRA distributions that can be rolled over tax-free to an IRA or other eligible retirement plan are generally subject to mandatory 20% withholding.)

If you want federal taxes withheld from Social Security benefits, you must file Form W-4V (the “V” is for voluntary) with the Social Security Administration. You can ask that 7%, 10%, 12% or 22% of each monthly benefit be carved off for the IRS.

When it comes to pension or annuity payments, you control how much will be withheld by filing a Form W-4P with the payor.

For IRA distributions, the law requires that 10% be withheld for the IRS unless you tell the custodian otherwise. You can block withholding altogether or ask that as much as 100% be withheld.

A better way for IRAs

Speaking of IRAs, a little-known opportunity may free you from withholding on multiple income sources and from the hassle of filing estimated taxes. We call it the RMD solution.

Starting at age 72, retirees must take required minimum distributions from their traditional IRAs, based on the balance in the accounts on the previous December 31st divided by a factor provided by the IRS.

However, if you don’t need the money to live on, wait until December to take your RMD and ask the sponsor to withhold a big chunk for the IRS — enough to cover your estimated tax on the IRA payout and on all of your other taxable income for the year.

Although estimated tax payments are considered made when you send in the checks — and must be paid as you receive your income during the year — amounts withheld from IRA distributions are considered paid evenly throughout the year even if made in a lump sum payment at year-end.

So, if your RMD is large enough to cover your entire tax bill, you can keep your cash safely ensconced in the IRA most of the year, avoid withholding on other sources of retirement income, skip quarterly estimated payments — and still avoid the underpayment penalty.

Note that RMD withholding might not work when it comes to state estimated taxes because some IRA sponsors won’t withhold state income taxes. Check this point with your IRA sponsor.

© 2021 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.