Quarterly Tax Payments

 

Quarterly Taxes – Can you avoid Penalties?

Fact:  U.S. income taxes are pay‑as‑you‑go. If your withholding won’t cover your total tax for the year, you may need to make quarterly estimated payments to avoid penalties.

Do you need to pay estimates?

You generally must make estimated payments if you expect to owe at least $1,000 after subtracting withholding and refundable credits. This “safe harbor” rule lets most people avoid penalties by paying the smaller of:

  • 90% of your current‑year tax; or
  • 100% of your prior‑year tax (110% if your prior‑year AGI was over $150,000; $75,000 if married filing separately).

When are estimates due?

For calendar‑year individuals, payments are due:

  • April 15
  • June 15
  • September 15
  • January 15 of the following year

You can pay all at once by April 15, or in four installments. If you file your tax return by early February and pay in full, you may skip the January payment. You can pay with a voucher by mail or online electronically.

There are some special calendars for Farmers/fishermen and nonresident aliens.  Check with us if you fit one of these categories.

How much should you pay?

  • Safe harbor: Use the 90%/100% (or 110%) thresholds above to calculate your quarterly amounts and avoid penalties
  • Annualization: If your income is seasonal or uneven, you can compute installments using the annualized income method (applicable percentages 22.5%, 45%, 67.5%, 90%), which may reduce penalties if income arrives later in the year
  • Withholding counts: Wage withholding is treated as estimated payments paid evenly across the year unless you document actual dates—which can help minimize penalties if you increase withholding later in the year.

What happens if you don’t pay enough?

An “underpayment of estimated tax” penalty applies by installment period. It’s interest‑style: the IRS applies the underpayment rate under § 6621 from the due date of each installment until it’s paid (or until the 15th day of the fourth month after year‑end). The penalty is calculated automatically if you didn’t pay enough on time.

You can often reduce or eliminate this penalty by either meeting the safe harbor, using annualization, or increasing withholding later in the year as allowed in § 6654(g) . Why give the government more than you owe them because of the calendar?

Penalty waivers:

  • The IRS may waive the penalty if you had a casualty, disaster, or other unusual circumstances, or if you retired after age 62 or became disabled and the underpayment was due to reasonable cause

Note: This estimated tax penalty is separate from the failure‑to‑pay penalty after filing your return; the latter is under § 6651 and not part of estimated tax rules.

Quick planning tips

  • Use the safe harbor thresholds (90% current, 100% prior year, or 110% for high AGI) to set quarterly payments
  • If income is uneven, consider the annualized income method to match payments to when you actually earn income.  This is where we can help you!!
  • Adjust your W‑4 to increase withholding—treated as estimates—especially late in the year. Remember if you get married you should look at joint income.
  • Pay by the four due dates using vouchers or IRS online options in Form 1040‑ES; check IRS.gov for electronic payments.  We will provide this if we do your estimated payments.

For business owners (Partnerships & S-Corporations)

Many of the States allow for estimates to be paid by the business as a PTE payment made on behalf of the owners.  This allows the business to count it as an expense and lower net income and the income can then be backed out of personal return.

If you have questions about estimated payments and whether you should make them or how we can help you avoid tax penalties due to late payments or no payments.   Let’s Chat.