Underpayment penalty

[Wonder Why]

12. That is correct. If walkingman gets interest from the CD in Feb, then he has to pay an estimated tax to

avoid penalty by April 15. Similarly, for other dates of distribution. However, that only applies if the distribution is significant enough. If he gets $100, there would be no penalty but $10,000 might. The bank/whatever that pays the CD may have an option to automatically pay federal/state tax taken out of the money received before sending hem the remainder to simplify things.

For me, almost all of my income comes from SS and RMD so the amount I get from CDs, money markets, etc don't count especially since I always get a refund so the taxes taken out by SS and whenever I take part of my RMD (taken out early in the year) are overpaid so the sums from CDs and money markets during the first three quarters are below any threshold for getting a penalty.