A retiree who ends up owing the IRS at tax time usually has two ways to head off the same surprise the following year: have federal tax withheld directly from a Social Security check, or send the government estimated payments four times a year. Retirement income rarely arrives with the automatic withholding a paycheck once provided, so taxes on Social Security, pensions and account withdrawals can quietly accumulate until April. Both methods spread the bill across the year and, done correctly, avoid an underpayment penalty on top of the tax owed.
Withholding tax straight from a Social Security check
Social Security recipients can have federal income tax taken out of each payment by filing Form W-4V, the Voluntary Withholding Request. The form, revised in January 2026, offers four fixed rates — 7%, 10%, 12% or 22% — and does not allow a custom percentage or a flat dollar amount. The completed form goes to the Social Security Administration rather than to the IRS.
Once in place, the chosen percentage is withheld from every monthly benefit and forwarded to the IRS, much like withholding from a paycheck. A recipient can raise, lower or stop the withholding at any time by submitting a new form. For many retirees whose main income is Social Security plus a modest amount from other sources, one of the higher rates can cover the entire year’s tax with no further action.
The fixed rates are the method’s weakness as well as its strength. A retiree with substantial pension income, large IRA withdrawals or sizable investment gains may find that even 22% withheld from Social Security falls short of the total owed. In that situation, the withholding covers part of the bill while estimated payments handle the remainder.
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Paying the IRS in quarterly installments
The alternative — or the supplement — is estimated tax. The IRS operates on a pay-as-you-go basis, expecting tax to be paid as income is received rather than in a single lump sum at filing. Its estimated-tax rules set four payment deadlines across the year, generally in April, June, September and the following January, for income not otherwise subject to withholding.
Estimated payments suit income streams that carry no withholding at all: brokerage distributions, rental income, self-employment earnings and required minimum distributions taken without tax withheld. A retiree can base the payments on the prior year’s tax to stay within a safe harbor, then reconcile the total at filing, paying any remainder or claiming a refund for an overpayment.
The safe-harbor thresholds that prevent a penalty
The IRS builds in a way to avoid the underpayment penalty even for a retiree who cannot predict the year’s tax exactly. Under the agency’s safe-harbor rules, a taxpayer who pays in — through withholding, estimated payments, or both — at least 90% of the current year’s tax, or 100% of the prior year’s tax, generally owes no penalty regardless of how the final bill lands. For higher earners the second figure rises: taxpayers whose prior-year adjusted gross income topped $150,000 must reach 110% of the prior year’s tax to stay protected.
Basing the year’s payments on the prior year’s tax is often the simpler path, because that number is already known. A retiree can divide 100% (or 110%) of last year’s tax across the year’s withholding and quarterly payments and be shielded from the penalty even if income climbs. The current-year option, by contrast, rewards a year when income falls, since 90% of a smaller bill is a lower bar to clear.
There is also a floor below which none of this applies. If the total tax owed after withholding and credits comes to less than $1,000 for the year, no penalty is charged and estimated payments are not required — a threshold that spares many retirees with modest non-Social-Security income from the quarterly system altogether. Because the safe harbor prevents only the penalty and not the tax itself, the full balance still comes due at filing — the rule simply keeps a surprise from turning into an added charge.
Avoiding the underpayment penalty
Falling short during the year does more than defer the bill — it can trigger a separate charge. The IRS assesses an underpayment penalty when too little tax is paid through withholding and estimated payments combined, calculated much like interest on the shortfall for the period it went unpaid.
Withholding carries a quiet advantage here. The IRS treats tax withheld from Social Security or a pension as paid evenly throughout the year, no matter when it was actually taken out. A retiree who realizes late in the year that too little has been paid can sometimes raise withholding to cover the gap and sidestep the penalty, an option estimated payments — tied to specific quarters — do not offer as cleanly.
The choice is not either-or. Many retirees combine a withholding rate on Social Security with estimated payments on other income, adjusting both as circumstances change. Matching the method to the income — Form W-4V for the benefit check, quarterly payments for everything else — and checking the total against the IRS pay-as-you-go rules keeps the April bill, and any penalty, from arriving as a surprise.
This article was researched and drafted with the assistance of AI and reviewed by The Money Overview editorial team.
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