Hello,
The statements about paying a certain percentage of your prior years tax liability or this years liability can be confusing so hopefully this example will clarify that for you. These are 2 different tests and you only have to meet one.
For example, you are required to send in quarterly estimated tax payments on earnings that are not subject to withholding such as self employment income.
Look at line 16 on your 2021 1040. This amount is the tax liablility for that year. As long as in 2022 , you made quarterly estimated payments equal to ( 100%) of this amount, you will not be subject to an estimated tax penalty.
Alternatively, look at line 16 of your 2022 1040. You need to have paid ( sent in quarterly payments) equal to at least 90% of your tax liabilty for this year. If you paid 90% of your tax liablility for 2022 , you would not have a penalty.
This is because your situation changes from year to year and as long as you paid 100% of your previous years liability, even if your tax liability increases the next year, you wont get the penalty.
If you are late sending in a quarterly payment, make the payment as soon as possible. As long as you met the above conditions, you will not have a penalty.
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