Fellowship

[evamking27]

Hello,

I believe I owe quarterly tax payments for the tax year 2023. I earned income with tax withheld January-June 2023, then received monthly fellowship payments with an initial pay date of September 15.

Because I first got paid for the fellowship on the same date as the 3rd quarter tax payment, does that income count towards the last quarter payment (I am wondering if I will receive a late penalty?)

Thanks!

[Hal_Al · Accepted solution]

Q. Money received on Sept 15 (same date as the 3rd quarter tax payment) does that income count towards the last quarter payment ?

A. Yes.  The 4th tax quarter is actually 4 months long Sep 1 to Dec 31.  See @NCperson  reply below. 

Q. I am wondering if I will receive a late penalty?

A. Probably not. 

A penalty is due  if for the current tax year if both of the following apply:

- 1. You  owe at least $1,000 in tax for the current tax year, after subtracting your withholding, quarterly estimates and credits. 
- 2. Your withholding and credits are less than the smaller of: 90% of the tax to be shown on your current year’s tax return, or  100% of the tax shown on your prior year’s tax return. (110% if your AGI was more than $150K) . Your prior year tax return must cover all 12 months.

[evamking27]

If I received all this fellowship during the 3rd and 4th quarters (and it turns out that I do need to pay quarterly estimated payments), then how does the IRS know that I received this income during the 3rd and 4th quarters? I did not know that this stipend would be in fellowship form earlier in the year, so I couldn't possibly have paid estimated tax payments during the 1st and 2nd quarters. So will I be penalized for these quarters too, if the IRS is only interested in total annual amounts? My understanding was that you only send quarterly payments with no forms indicating your income for that quarter - the payments are based on your total estimated annual income. 

Thank you for your help. 

[Hal_Al]

Q. How does the IRS know that I received this income during the 3rd and 4th quarters?

A.  They don't.  You have to tell them.

Q. My understanding was that you only send quarterly payments with no forms indicating your income for that quarter - the payments are based on your total estimated annual income.  So will I be penalized for these quarters too, if the IRS is only interested in total annual amounts? 

A. If you send in four (4) equal estimated payments, then it doesn't matter that your payments match your income.  When TurboTax sees that you have entered four unequal payments (or less than 4 payments), it will ask you to enter your income by quarter and fill out form 2210 to calculate the under payment penalty. 

[evamking27]

Okay, thank you. 

If you miss a quarterly payment (clearly I missed the 3rd quarter because I did not receive income until the date that the quarterly payment was due), can I pay a 'late' quarterly payment, or should I wait until the 4th quarterly payment date to send anything to the IRS? 

If I overestimate my taxes owed, and send an overpayment for my quarterly payment, is this included as a credit on my annual tax return?

[Hal_Al]

Q. If you miss a quarterly payment, can I pay a 'late' quarterly payment?

A. Yes.  If you get to the point where you owe an underpayment penalty, you calculate the penalty based on the actual date paid. So, being a few days late is better than waiting til the next quarter.

[NCperson]

@Hal_Al I thought money received through August 31 was the cutoff for calculating the Sept 15 estimated payment (I assume that is what you meant by "3rd quarter').  So the 'third quarter" would be June 1 through August 31st.

Any income received in September would impact the January 15, 2024 estimated tax payment, right?

Q1 = January 1 - March 31 (April 15 estimated payment)

Q2 = April1 - May 31 (June 15 estimated payment)

Q3= June 1 - August 31 (Sept 31 estimated payment)

Q4 = Sept 1 - December 31 (January 15 estimated payment)

[Hal_Al]

@NCperson  is correct.  The 2nd and 4th tax "quarters" are not the same as calendar quarters. 

Reference: https://www.irs.gov/faqs/estimated-tax/individuals/individuals-2

I have revised my answer above.