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late on estimated taxes and how to avoid fees

I missed the April estimated taxes due date.   If I pay more than the required estimated taxes in May, can I avoid getting a penalty?

 

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6 Replies
ShannonDuff
Employee Tax Expert

late on estimated taxes and how to avoid fees

 You must pay your estimated taxes on time for each of the four periods to avoid any penalties. If you pay more in quarter 2 because you were late in quarter 1, you may have a refund  at the end of the year but you will still be hit with a penalty for being late. You can find more information on this topic at:

https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

Best wishes,
ShannonD

late on estimated taxes and how to avoid fees

Generally, most taxpayers will avoid this penalty if they paid at least 90% of the tax for the current year, or

or 100% of the tax shown on the return for the prior year, whichever is smaller

 

 

what does that mean?

late on estimated taxes and how to avoid fees

Generally, an underpayment penalty can be avoided if you use the safe harbor rule for payments described below. The IRS will not charge you an underpayment penalty if:

You pay at least 90% of the of the tax you owe for the current year, or 100% of the tax you owed for the previous tax yearrule is altered slightly for high-income taxpayers. If the Adjusted Gross Income (AGI) on your previous year’s return is over $150,000 (over $75,000 if you are married filing separately), you must pay,

 

can you give me an example of what this means?

late on estimated taxes and how to avoid fees

i over paid by 200% on my last year, 2023 taxes 

so hence i should not get a penalty for underpayment for tax year 2024?

 

 

late on estimated taxes and how to avoid fees

The IRS can charge you a penalty for late or inadequate payments even if you're due a refund when you file your tax return.  What does not make sense in safe harbor rules , if you pay 90% of tax you owe for current year then avoid penalty.     why even have to pay estimate in first place if you are getting a refund for the year?

FranklinF
Employee Tax Expert

late on estimated taxes and how to avoid fees

I will summarize the previous answers by virtue of some examples/scenarios.

1. For example, you owe $750 in the CURRENT TAX YEAR.
    Because you owe less than $1,000, you will NOT incur in an underpayment of estimated taxes
    penalty.

 


2.  You owed $8,000 in the PRIOR year and you owe $10,000 in the CURRENT Year. You paid $8,000.
     PRIOR YEAR:        100% ($  8,000) = $8,000
     CURRENT YEAR:    90% ($10,000) = $9,000
     BECNHMARK TO BE MET IS $8,000 (The lesser of two)

    Because the appropriate benchmark was met, you will NOT incur in an underpayment of estimated
    taxes penalty.

 


3  You owed $15,000 in the PRIOR year and you owe $10,000 in the CURRENT Year. You paid $9,000.
     PRIOR YEAR:       100% ($15,000) = $15,000
     CURRENT YEAR:    90% ($10,000) = $  9,000
     BECNHMARK TO BE MET IS $9,000 (The lesser of two)

    Because the appropriate benchmark was met, you will NOT incur in an underpayment of estimated
    taxes penalty.


4.  You owed $8,000 in the PRIOR year and you owe $12,000 in the CURRENT Year. You paid
     $9,000 and your ADJUSTED GROSS INCOME (AGI) is greater than $150,000 if you are
     MARRIED FILING JOINTLY ($75,00 if MARRIED FILING SEPARETLY)

     PRIOR YEAR:       110% ($   8,000) = $  8,800
     CURRENT YEAR:    90% ($12,000) = $10,800
     BECNHMARK TO BE MET IS $8,800 (The lesser of two)

    Because the appropriate benchmark was met ($9,000 > $8,800), you will NOT incur in an
    underpayment of estimated taxes penalty.


FINALLY, while it is true that you may still incur in underpayment of estimated taxes penalty DESPITE HAVING A REFUND because the payments were NOT MADE ON A TIMELY MANNER, you could use Tax withholdings to avoid underpayment penalties.

If Income Taxes are withheld from wages, said income taxes are considered to be paid evenly throughout the tax year, unless otherwise stated by the taxpayer the taxpayer (Sec. 6654(g)). In other words, make arrangements with your employer to increase your withholdings and/or make additional payments.

By the way, the DUE DATES for Tax Estimated Payments as they apply to Tax Year 2024 are the following:
1. April 15th, 2024
2. June 17th, 2024
3. September 16th, 2024, and
4. January 15th, 2025


About Form W-4, Employee's Withholding Certificate 
W-4 Calculator 2024 
Tax Withholding Estimator 
Underpayment of Estimated Tax by Individuals Penalty 


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